3 ms·

It’s actually not very complicated how all of this works: * Crypto exchanges have the problem of collecting fees in crypto, and wanting to make a profit in USD

It’s actually not very complicated how all of this works: * Crypto exchanges have the problem of collecting fees in crypto, and wanting to make a profit in USD. * Stablecoin operator receives commercial paper (IOUs) from businesses, usually crypto exchanges. Issues tokens in return. (Note that the Stablecoin issuers are connected directly to the biggest exchanges e.g. Bitfinex/Coinbase/Binance) * Now the crypto exchange has a debt to the Stablecoin operator, some crypto profits, and some stablecoins. * Crypto company trading desk does the following: * Trade crypto (e.g. Bitcoin) for USD and take profit * Trade stablecoins for crypto on any number of exchanges The Stablecoin allows them to take profit without trading against themselves, and it allows them to remove USD from the system while adding debt in the form of an IOU. It also spreads liquidity risk across the entire ecosystem and allows the movement of vast sums without banking regulations getting in the way. So yes… there is something very wrong. What is amazing is how many people are blind to it.

deweller 5y ago
Serious question: What is wrong with this?
- relax88 5y ago
  The “corporate paper” backing the now nearly $100 BILLION of issued stablecoins relies largely on crypto exchanges to continue making money in order to have any value whatsoever. This is basically a giant distributed Ponzi scheme resembling wildcat banks of the early 1800s. Customer US dollars come into the market, USD goes out into the pockets of crypto insiders, and the crypto market remains propped up by the “value” of these stablecoins. The only thing that keeps it going is that the stablecoin issuers (same people who are running the exchanges) have no incentive to collect the debt they are owed so everyone is happy (for now). Crypto fans like to think they are innovating but all they’ve done is found a way to circumvent regulation and try a concept that was ended in 1863 by the national bank act. https://en.m.wikipedia.org/wiki/Wildcat_banking https://en.m.wikipedia.org/wiki/Wildcat_banking If you think this ends any other way than regulation and tears I’m not sure what to tell you.
lamontcg 5y ago
I think you're basically correct, but I think the "commercial paper" or "cash equivalents" or whatever they want to call it is loans that originate from the stablecoin issuer, that are against crypto cold wallets of the customer. There's about 1,000,000 BTC in cold wallets of customers of stablecoins. They prove to the stablecoin issuer that they control the wallet (send two small transactions to some address somewhere). Then the issuer loans them the stablecoin and holds the paper against that debt, denominated in dollars. This provides a service to create liquidity out of BTC cold wallets, which is why it is popular to begin with. Since the debt is dollar denominated that means if the stablecoin falls to $.50 then they have to pay back half the debt in real USD. So that creates upwards pressure to maintain the PEG. Downwards pressure is easy and just profit taking if it exceeds $1.00 Also explains why Tether printing stops once the outstanding number of Tethers is worth roughly 1,000,000 BTC and BTC pulls back. Once the BTC price falls much lower than that, you start to see redemptions and burn. Then when it rises near that point again you start to see more issuance. This also answers the question of "who buys Tethers with USD?" Nobody does, it is all crypto debt. And this all creates a positive feedback cycle driven by debt, backed by crypto. What could go wrong?

deweller 5y ago

Serious question: What is wrong with this?

relax88 5y ago
The “corporate paper” backing the now nearly $100 BILLION of issued stablecoins relies largely on crypto exchanges to continue making money in order to have any value whatsoever. This is basically a giant distributed Ponzi scheme resembling wildcat banks of the early 1800s. Customer US dollars come into the market, USD goes out into the pockets of crypto insiders, and the crypto market remains propped up by the “value” of these stablecoins. The only thing that keeps it going is that the stablecoin issuers (same people who are running the exchanges) have no incentive to collect the debt they are owed so everyone is happy (for now). Crypto fans like to think they are innovating but all they’ve done is found a way to circumvent regulation and try a concept that was ended in 1863 by the national bank act. https://en.m.wikipedia.org/wiki/Wildcat_banking https://en.m.wikipedia.org/wiki/Wildcat_banking If you think this ends any other way than regulation and tears I’m not sure what to tell you.

lamontcg 5y ago

I think you're basically correct, but I think the "commercial paper" or "cash equivalents" or whatever they want to call it is loans that originate from the stablecoin issuer, that are against crypto cold wallets of the customer. There's about 1,000,000 BTC in cold wallets of customers of stablecoins. They prove to the stablecoin issuer that they control the wallet (send two small transactions to some address somewhere). Then the issuer loans them the stablecoin and holds the paper against that debt, denominated in dollars. This provides a service to create liquidity out of BTC cold wallets, which is why it is popular to begin with. Since the debt is dollar denominated that means if the stablecoin falls to $.50 then they have to pay back half the debt in real USD. So that creates upwards pressure to maintain the PEG. Downwards pressure is easy and just profit taking if it exceeds $1.00 Also explains why Tether printing stops once the outstanding number of Tethers is worth roughly 1,000,000 BTC and BTC pulls back. Once the BTC price falls much lower than that, you start to see redemptions and burn. Then when it rises near that point again you start to see more issuance. This also answers the question of "who buys Tethers with USD?" Nobody does, it is all crypto debt. And this all creates a positive feedback cycle driven by debt, backed by crypto. What could go wrong?