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Think of it as a synthetic derivative. They are investing in something like treasuries or commercial paper denominated in dollars but maintain a dollar peg. L

Think 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 ago
I'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 ago
  If everyone wants to sell their USDC today they wouldn't be able to liquidate fast enough.
  - pmorici 5y ago
    I 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 ago
  GUSD / 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.
paulgb 5y ago
I'm sure USDC would like me to think of it as a benign synthetic derivative, but it doesn't feel that way to me. They've moved the goalposts from "dollar backed" to "asset back", which puts the downside risk of those (unknown?) assets on USDC holders, whilst keeping any upside for themselves. A synthetic derivative should have agreed-upon terms, which does not appear to be the case here.

dalbasal 5y ago

I'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 ago
If everyone wants to sell their USDC today they wouldn't be able to liquidate fast enough.
- pmorici 5y ago
  I 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 ago
GUSD / 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.

paulgb 5y ago

I'm sure USDC would like me to think of it as a benign synthetic derivative, but it doesn't feel that way to me. They've moved the goalposts from "dollar backed" to "asset back", which puts the downside risk of those (unknown?) assets on USDC holders, whilst keeping any upside for themselves. A synthetic derivative should have agreed-upon terms, which does not appear to be the case here.