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Report on Stablecoins [pdf]

654 points by TheAlchemist 5y ago

aresant 5y ago
TL;DR - Stablecoin issuers should operate under same regulatory structure as banks !
m0zg 5y ago
Treasury at least knows what it's talking about. The Congress (whom they're asking for legislation here) not only won't understand any of this, but worse, will write whatever laws big bank lobbyists want them to write, with the primary intent to make all of this non-viable for anyone but Goldman Sachs and JPMorgan through regulatory capture. I'll leave it to you to decide whether this preferential treatment is better than the current lax regulation.
fieldcny 5y ago
The issue with trying regulate this calamity is that this is inevitably going to lead to a bail out of this scam when it collapses. It’s worse than the rail road trusts in the 20s
deleted 5y ago
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vineyardmike 5y ago
> To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level. > To address concerns about payment system risk, in addition to the requirements for stablecoin issuers, legislation should require custodial wallet providers4 to be subject to appropriate federal oversight. Congress should also provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities that are critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards. > To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. Supervisors should have authority to implement standards to promote interoperability among stablecoins. In addition, Congress may wish to consider other standards for custodial wallet providers, such as limits on affiliation with commercial entities or on use of users’ transaction data. AKA StableCoin operators should be banks. (Stable Coins will be bank notes)?
- colinmhayes 5y ago
  Tether was invented to provide bitfinex with banking services after the banks refused to deal with them. Not super surprising that regulators are treating this banking replacement as a bank.
- eightysixfour 5y ago
  I think this is a pretty decent set of recommendations considering the power stablecoin issuers have, personally. > Stable Coins will be bank notes. Exactly.
- pjc50 5y ago
  > Stable Coins will be bank notes What do you call an institution that takes deposits and lends them out, such as by buying ""commercial paper"" that Tether repeatedly talks about? A bank. (Or possibly a money market fund)
  - the_optimist 5y ago
    You call it a 0% interest money market fund. You do not call it a bank. A bank does something entirely different: create 'bank loans'. A non-bank does not have the ability to create bank loans.
    - JumpCrisscross 5y ago
      > A bank does something entirely different: create 'bank loans'. A non-bank does not have the ability to create bank loans. I agree with you, broadly, though I have to comically point out that Tether was absolutely also originating loans.
      - the_optimist 5y ago
        This might be right (though to my knowledge, it's not what they claim to be doing). To originate a loan, Tether would simply issue and lend their coin (Tether), specifically ignoring dollar backing. Can you provide a discussion of them doing this?
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frisco 5y ago
> To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level. How does this interact with the concept of algorithmic stablecoins? Not every stablecoin is simply backed by deposits.
- svachalek 5y ago
  I think it would make them illegal. As it probably should, I'm not aware of any that are not an elaborate scam.
  - __MatrixMan__ 5y ago
    I read your comment and then started reading about at MakerDAO's governance model. It doesn't jump out as a scam to me, just a clever bit of game theory. What am I missing?
    - deleted 5y ago
      [deleted]
    - bduerst 5y ago
      DAO is crypto backed by crypto. I think GP is referring to the lack of transparency with fiat-backed stable coins, like tether.
  - sputknick 5y ago
    Do you have any thoughts on how you would do that? Isn't that as practical as outlawing Bitcoin?
    - svachalek 5y ago
      I'm not the government or even a lawyer. But I'd imagine they'd block companies from trading Bitcoins for dollars or mining Bitcoin. Turn off all the ETFs and options trading. Say Tesla and MicroStrategy can't hold it in their treasury. I doubt they can make it disappear but that would certainly put a dent in US adoption.
pulse7 5y ago
This is a "regulated cybercurrency".
gt565k 5y ago
Value of crypto got too big, now the govt wants in. Can't say we didn't see this coming. This is good for crypto as it opens the doors for mainstream and institutional adoption at higher levels. Plus, stable coins should be regulated and audited. Looking at you tether.
- animal_spirits 5y ago
  I see it more as People who are given the job to protect the American People and the American economy from financial manipulation see that stablecoins have a high risk of financial manipulation rather than "govt wants in"
natch 5y ago
> Stablecoins are digital assets that are designed to maintain a stable value relative to… Is this always technically true? Or are they sometimes just (inserting word) *purportedly* designed to do that?
robmerki 5y ago
Tether and other pose a critical systemic risk to all cryptocurrency. Anything to increase trust/transparency with stablecoins is a big with for crypto.
- Aaronstotle 5y ago
  Tether absolutely poses a large risk to crypto. If companies do issue stablecoins, they should have links to third-party attestations that verify proof of reserves like Circle (USDC) does. Tether could end all of their "FUD" if they ever published such a report. Circle's reporting: https://www.circle.com/en/usdc#transparency https://www.circle.com/en/usdc#transparency (edited to change audits --> attestations)
  - yashap 5y ago
    IMO “FUD” about Tether will never end, because it’s a fairly clear scam. The fear/uncertainty/doubt around it is not due to an easily remedied lack of transparency, the lack of transparency is just an attempt to disguise the scam. I see Tether heading towards collapse, not legitimacy, and any actual increase in transparency would just hasten the collapse.
  - deleted 5y ago
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  - lavezzi 5y ago
    Circle are not audited, Grant Thornton provide an attestation. There's a big difference.
    - Aaronstotle 5y ago
      This is true, I'll edit my comment. I still think a third-party attestation provides a lot more trust than the shady-stuff going on with Tether.
      - salawat 5y ago
        An attestation is doesn't mean squat. It means someone witnessed something once and some agreement was executed in accordance with some policy. You want an audit. I have been there, seen the procedures, run the numbers, and independently verified that when followed yield the same result as reported. It's the difference between "Seem's legit" and "The numbers check out".
colatkinson 5y ago
From the "Recommendations" section: > Legislation should address the risks outlined in this report by establishing an appropriate federal prudential framework for payment stablecoin arrangements.29 In particular, with respect to stablecoin issuers, legislation should provide for supervision on a consolidated basis; prudential standards; and, potentially, access to appropriate components of the federal safety net. To accomplish these objectives, legislation should limit stablecoin issuance, and related activities of redemption and maintenance of reserve assets, to entities that are insured depository institutions. > The standards to which these [insured depository] institutions are subject include capital and liquidity standards that are designed to address safety and soundness and, for the largest banking organizations, also include enhanced prudential standards that address financial stability concerns. Under the Federal Deposit Insurance Act, insured depository institutions also are subject to a special resolution regime that enables the orderly resolution of failed insured depository institutions by, among other mechanisms, protecting customers’ insured deposits, and according priority to deposit claims over those of general creditors, and limits any potential negative systemic impacts in the event of bank failure. I suspect that we're going to very quickly (by legislative standards) find out which stablecoins are backed by real currency and which are "backed by real currency." I'm betting short-term there'll be some issues with liquidity, especially on smaller exchanges. But longer-term, having the gaps filled in by stabler stablecoins can't hurt.
- X6S1x6Okd1st 5y ago
  we already know that USDT isnt actually backed by currency
- sanderjd 5y ago
  Exactly. Regulation can only be long-term good for the space, which is sorely lacking in legitimacy.
  - __MatrixMan__ 5y ago
    I'm not so sure. There's a type of person who would deem the US Government having a privileged role in coin governance as a legitimacy-reducing factor for that coin, and that type of person is over-represented in crypto circles. Also there's a possibility that whatever coins decide to comply end up spending their reserves on humans-in-the-loop to ensure compliance, thereby giving an advantage to the noncompliant coins. Something analogous to this happened where I'm from: We voted to legalize recreational cannabis, but most people still use the black market because regulatory burdens put the legal shops at too great of a disadvantage to be competitive.
nostrademons 5y ago
Interesting to read this with an eye on the authors' mindset. Their understanding of stablecoins seems largely centered on Tether (and to a lesser extent, BUSD/USDC). A lot of their understanding is incorrect when applied to algorithmic stablecoins like Dai, eg. there is no central issuing authority; Dai is minted in exchange for Ethereum (and other cryptocurrencies), not fiat currencies; the effect of a run on Dai is unlikely to spill over into the mainstream financial system; a "custodial wallet" in DeFi is not a company but just an Ethereum address, i.e. a hash of a public/private keypair. Overall I get the sense that the government is still people/organization centric and cannot wrap its head around a future where reality is determined by computer code and people are bit players in the script.
- orasis 5y ago
  Legislation will ensure that reality continues to be determined by legislation, not computer code.
- toomuchtodo 5y ago
  That computer code runs somewhere and every IP address leads to a person eventually.
  - nostrademons 5y ago
    Except it doesn't. On Ethereum and other blockchains, that computer code runs everywhere, and every IP address is a gossip protocol that may have originated an undetermined number of hops backwards.
  - deleted 5y ago
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  - vmception 5y ago
    The lifecycle of an autonomous program (colloquially called smart contract) is that it is deployed by an address of a human being or that human being's server, and then the address' first transaction to the autonomous program is to delete the address' administrative capabilities of that program. Autonomous programs live on every validating node of that blockchain, and those validating nodes have no knowledge of the behavior of those programs. The deployment feature publishes the code on all validating nodes, no different than any other transaction. All future behavior of the autonomous program comes from individual users who do not control it. So for what grandparent poster was referring to, stablecoins collateralized by digital assets, all the collateral is provided by users and all the stablecoins issued were caused by users providing collateral. Those users clearly do not run the autonomous program, no different than a depositor at a bank is not responsible for the bank when they ask for a loan from the bank. There is nobody to sanction, and there is no way to disable the autonomous program that accepts collateral and issues collateralized stablecoin loans. Also, within EVMs (a type of development platform, growing category of blockchains), the users do not have a record of an IP address (although the node they connect to can record it, to mitigate that the user can run a relaying node from their personal computer. relaying nodes forward to validating nodes. no nodes in an EVM have knowledge of other nodes IP address and no nodes are even aware of which node saw a transaction first). And regarding the tracing of their onchain address, a user can provide collateral from a virgin address funded by other autonomous programs like Tornado which sufficiently mix funds. The programs and the regulators are not capable of factoring in our opinion about that.
sschueller 5y ago
If the US would just provide its own stable coin it would kill all other USD stable coins and there would be no more issues. Who would want tether if you can get government backed USD stable coins?
- paulgb 5y ago
  > Who would want tether if you can get government backed USD stable coins? People who wanted to hold USD outside of the US's jurisdiction, for one. I suspect this is one reason that apparently “more legitimate” stablecoins haven't caused huge Tether outflows.
- trophycase 5y ago
  Nobody. The alternative to government backed USD stable coins isn't tether. It's algorithmic stablecoins (FEI, FRAX, etc.) and collateralized stablecoins (DAI, MIM, LUSD, DOLA, etc.).
- sanderjd 5y ago
  Agreed, a USD CBDC is the right answer, but also seems unlikely to happen.
- baby 5y ago
  It doesn’t mean that the US stablecoin would be easily usable on different cryptocurrencies, and easily swappable across different cryptocurrencies.
felixbraun 5y ago
Interesting to see Mastercard, Square, Stripe, FIS, Fiserv and Visa all mentioned in "Market Participants". None of those actively today use/settle stablecoins publicly?
- inter_netuser 5y ago
  all of the above are heavily involved in crypto.
- TheAlchemist 5y ago
  Also no mention of FTX. Pretty surprising given their importance in the market.
- vineyardmike 5y ago
  > None of those actively today use/settle stablecoins publicly? No but they settle financial transactions today, and the SEC is basically saying there should be no difference.
  - JumpCrisscross 5y ago
    > No but they settle financial transactions today, and the SEC is basically saying there should be no difference This report is from the Treasury. Not the SEC. Also, the SEC doesn't regulate financial transactions. Just securities and exchanges. The SEC has argued that stablecoins are securities. That is an interesting argument, and I sort of see both sides of it, but somewhat unrelated to this paper.
- rewtraw 5y ago
  I don't believe they support them today, but all of these companies have announced plans to adopt crypto in some form, including stablecoin support or Ethereum-based settlement.
- spir 5y ago
  Visa uses Ethereum mainnet today (for about 6 months or more?) to settle obligations between a small subset of their merchants whose businesses are in crypto.
kim0 5y ago
For a stable coin to actually work, it needs to be private and algorithmic. The only such crypto I know of, is Haven protocol. This is based on a fork of Monero the largest fungible crypto network, with a system of private synthetic assets on top. Things like synthetic USD, CHF, GBP, also gold and silver...etc. If you find this interesting, read more at https://havenprotocol.org/knowledge/ https://havenprotocol.org/knowledge/
- andred14 5y ago
  Haven is cool but the Secret Network (SCRT) is better Imo :) I don't like how the wallet for Haven is web based ie. if the website goes down then we lose access to our funds? In December the Shade protocol and associated stable coin comes out for Secret it's going be awesome. https://shadeprotocol.io/ https://shadeprotocol.io/ https://scrt.network https://scrt.network
gzer0 5y ago
This is specifically referring to non-algorithmic stablecoins. "Stablecoins that are purportedly convertible for an underlying fiat currency are distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets. Because of their more widespread adoption, this discussion focuses on stablecoins that are convertible for fiat currency."
- chizhik-pyzhik 5y ago
  This is a very good point. The risk profile of centralized stablecoins like Tether and USDC is way, way different from something algorithmically controlled like DAI.
  - X6S1x6Okd1st 5y ago
    Although DAI allows minting with USDC right now
  - dcolkitt 5y ago
    This shouldn’t be surprising. Permissionless systems often innovate orders of magnitude faster than permissioned systems. So many of these threads are filled with comments of the form “well why do we actually need a blockchain for that? Can’t we just do the thing with centralized databases?” But the point is after 50 years the centralized databases haven’t built those systems. Smart contracts, and instant finality transfers, and a public identity tied to private keys could all exist on ACH. Yet they only happened when blockchains came along. Blockchains aren’t a technical innovation, they’re a sociological innovation. They remove the responsibility of a centralized administrator if shit hits the fan. Visa won’t allow smart contracts in its network, because it has too much to lose. In Ethereum if the DAO breaks there’s no one to sue. Result smart contracts exist in Ethereum but not Visa. Same story holds true with the Internet. Do we really need a decentralized network designed to withstand a nuclear war? Surely a single telco network could just as easily serve up websites. Except it never did. The Internet won because it was permissionless and therefore innovation occurred much more rapidly.
Animats 5y ago
This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the price of Etherium drops more than 1/3. Etherium dropped by half back in May 2021, but recovered. DAI could have crashed at that time if it faced a net outflow. It didn't, though. The real question is what happens in the next recession.
- dustingetz 5y ago
  Risk is that a tether run causes all of crypto to collapse, not just USDT. How many actual dollars are in the system? Everything real has been exfiltrated through electricity bills, taxes and early adopters selling, the entire crypto economy is a hollow shell, leveraged on retail deposits.
  - wpietri 5y ago
    Exactly. Ultimately cryptocurrencies are a negative-sum game in that they take in real money and just move that money around, while spending some on overhead. In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more than the value of the inputs, making it a positive-sum effort.
    - wyager 5y ago
      The positive externalities from sound money and the concomitant demonetization of other assets (like real estate, oil, etc.) are massive, especially in the long term.
      - arcticbull 5y ago
        Real estate and oil are not money and therefore cannot be demonetized. One is a productive asset, the other a commodity. Words have meaning.
dexwiz 5y ago
All these coins are proven to be worthless. When speculation is making everyone money, the money isn't worth much. Edit: Love the immediate fear downvote. No one wants to hear their gold is really just shiny dirt.
- dragontamer 5y ago
  The downvotes are because "worthless" is hyperbolic and unhelpful. Clearly, the coins have value because someone out there feels like paying money for them. More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize. Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins. ------------------ The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple: Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt. A stable-coin, is simply the senior-debt on some other cryptocoin. ------- Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000. But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place). When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000. When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000. This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior. Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius. ------ You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money. Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it. Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however. It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.
Zamicol 5y ago
I've previously named Tether "rat poison" and I hope they are regulated/banned. Tether is an easy problem to "solve", and imho, should fall under existing regulation. However, I would love to see an explanation on how the treasury recommendation of regulating stablecoins as banks should apply to (what I see as beneficial) "algorithmic"/DAO stablecoins. The treasury's continued omissions, ignoring the real elephant in the room Maker, will only confuse regulators instead of addressing the "hard problem" of Maker. There are gorging differences between a centralized and "trusted" service like Tether and the algorithmic, automatic, decentralized, and trustless Maker.
okareaman 5y ago
Historically, we've had major bubbles and crashes in all kinds of financial markets, from stocks and bonds, to property and dotcom stocks. Is there any reason to believe that cryptocurrency is more stable and we won't have a catastrophic crash?
- mailbag 5y ago
  Arguably, we've already seen multiple catastrophic crashes in cryptocurrencies.
  - WhisperingShiba 5y ago
    Brother, you simply don't understand. A 50% swing in a day is just volatility.
  - epinephrinios 5y ago
    And the market rebounded without a government bailout.
    - seoaeu 5y ago
      Which is pretty clear evidence that those crashes weren't "catastrophic". That doesn't provide any proof that a future crash won't be substantially worse
      - epinephrinios 5y ago
        Similar crashes in the TradFi space would be considered worse than "catastrophic". Media would struggle to find words to describe them.
    - TrackerFF 5y ago
      ...and that's the dilemma. Did the market rebound because there's a organic growth of buyers, or did printing tethers out of thin air help this?
fancyfredbot 5y ago
"If well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options." Anyone else find it bizarre that the solution to slow payments might turn out to be distributed ledgers based on proof of work? It feels like the last thing you'd expect - especially since we're starting from a position of managing money through trusted centralised authorities. It's actually really weird we can't settle payments in seconds already.
- mgamache 5y ago
  All traditional methods use gatekeepers that control the flow of money. If you can't do what you want with your money is it really yours? The Trustless nature of BTC involves a seeming waste of energy, but you get a lot in return (like ownership of your money).
  - fancyfredbot 5y ago
    Sure, but my point was not really about trust. My point is that speed is easier to achieve without Blockchain than with it. It's strange that the centralised solution is slower.
    - sneak 5y ago
      The centralized, heavily regulated solution is slower. If they could impose all the regulation they want on permissionless, trustless p2p decentralized networks, those would be slow and massively expensive, too. Fortunately, they haven't the power. They can attack the edges (and ultimately every centralized stablecoin can be attacked) but they can't stop, say, uniswap.
    - anonporridge 5y ago
      The removal of human trust is the source of the speed. It's effectively the automation of slow, human intermediaries in the financial network that allows you to create a programmable money that runs 24/7 and is open and permissionless to boot. And with this programmable network, we can see an explosion of innovation, because nobody needs to wait around for a person to approve anything you want to try.
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andred14 5y ago
The government needs to go away they are doing nothing positive for the people. There are no laws written for cryptocurrencies and it should stay that way. What gives them the right to just make up laws about stuff when they feel like it? Cryptocurrencies are hurting nobody but government and their "regulations" are definitely hurting people. Therefore, by common law, the government cannot "regulate" anything that is not doing any harm just because they feel like it. Government should to go back to fixing roads and infrastructure. That is all we need from them the rest is tyranny.
alex504 5y ago
Would the act of regulating Tether and other stablecoins in and of itself crash the market? If the government shut Tether down, wouldn't that cause the run they are afraid of? The money is already missing, it is only a question of when the market realizes it.
- clintonb 5y ago
  The best time to stop the fraudulent scheme was yesterday. The next best time is now. It's better the Tether market crash now than after it's grown even more. This will suck for the folks that lose money, but it was going to hurt at some point.
Trias11 5y ago
Word "risk" appears in this doc 130+ times. However the sole existence of stablecoins and crypto is due to the fact that legacy, corrupt financial institutions and irresponsible government fiscal policies present the biggest risk to people wellbeing. So all these "risk" talks is a prerequisite for more taxes and more regulations that will only accelerate the natural evolution away from outdated, corrupt, centralized legacy institutions.
- MisterBiggs 5y ago
  While I would agree that the government is strongly incentivized to try and regulate crypto I think its hard to argue that stablecoins aren't ticking time bombs. Most of them clearly don't have the assests to back up their market caps and with 138 billion USD in market cap [1] they would certainly cause a crash of at least cryptocurrency if they became worthless. [1] https://www.coingecko.com/en/categories/stablecoins https://www.coingecko.com/en/categories/stablecoins
sub7 5y ago
From a Coinbase exec: "Tether is a ticking time bomb. Whenever it goes off, it'll be a 70-80% market correction for 2-3 years" Crypto continues to help nobody and achieve nothing in the real world. This administration has been criminally slow in shutting it down, lobby is strong.
- webinvest 5y ago
  No there won’t be a big long term correction from Tether because there are dozens of other stable coins now for people to temporarily sell into. There’s also the ability to short crypto and buy puts on crypto. All of that provides ways for speculators, investors, middle class savers, and early technology adopters to stay in the game. You’re like a doomsday predictor that will never see a doomsday happen. No real value? The AAVE crypto platform alone already holds more value ($23B) than the entire market cap of Ecuador’s stock market ($11B). The AAVE platform is literally more valuable than a country. AAVE is just one of many applications built on the Ethereum network. It speaks nothing of Uniswap, Maker, Yearn, Balancer, USDC, Compound, and many others. Bitcoin alone secures over 1 Trillion dollars.
  - notahacker 5y ago
    The Quito stock exchange consists of over 300 companies in farming, forestry, power generation, medical care etc. They have physical and human capital and earn profits from their paying customers, whether or not people want to buy stocks which offer them a share of this profit The AAVE platform consists of individuals lending recently printed tokens to each other to buy other recently printed tokens in what is essentially a zero sum game with no connection to the real world unless they can convince outsiders to pay even more money for some of the tokens. The fact the latter is notionally valued at higher than the former pretty much underlines the OP's point about the lack of "real value" underpinning the whole thing...
    - webinvest 5y ago
      The difference is momentum and trust. Crypto is underlined by trust. Permissionless trust and cross-border trust. Either people don’t trust the Quito stock exchange to return all of the money back to shareholders or they don’t see their money going up in value there. So people don’t give them their money.
chairmanwow1 5y ago
I have been waiting for some regulatory movement in this space. I am not really familiar enough with government agencies to know how a document like this filters into Congress for actual regulations to start getting drafted and debated, but to my ignorant eyes this is great news!
LatteLazy 5y ago
The only real point of stable coins seems to be tax/sanctions evasion. Given that, no respectable institution (tier 1 banks etc) will run one. Given that, all stable coins are only stable till the disreputable nature of the operator catches up with them...
- Lordarminius 5y ago
  > The only real point of stable coins seems to be tax/sanctions evasion. Do you have any hands on experience with crypto ?
- dbmikus 5y ago
  Stablecoins are useful if you want to participate in DeFi with stable currencies.
- andred14 5y ago
  [dead]
neaanopri 5y ago
Fed should make a commitment NOT to bail out crypto people under ANY circumstances!
- webinvest 5y ago
  They might one day bail out the banks that use Ripple (XRP)… as well as the banks that don’t use it. Bitcoin was literally created due to bailouts. Just read the genesis block of Bitcoin.
  - bduerst 5y ago
    Ripple has a lot of "partner" banks, not actual users. They're notorious for hamming that up: https://www.forbes.com/sites/jasonbloomberg/2019/03/01/is-ripple-a-scam/ https://www.forbes.com/sites/jasonbloomberg/2019/03/01/is-ri...
- asasidh 5y ago
  the people who "crypto" and the people who look for handouts are two very different groups.
  - sneak 5y ago
    That was true only in limited scope and a very long time ago. Most people in the US in the space just use Coinbase and in practice use that just like any other bank.
aetherspawn 5y ago
> Conversely, mass adoption of a well-regulated and supervised stablecoin with strong AML/CFT protections built into the stablecoin could provide greater transparency into illicit financial activity and could mitigate ML/TF risks, especially if the stablecoin takes market share away from riskier alternatives. Interesting. The blockchain is public, so they see benefit in being able to audit it.
- xtat 5y ago
  hn is beginning to understand
rburhum 5y ago
SEC Comments about this report: https://www.sec.gov/news/statement/gensler-statement-presidents-working-group-report-stablecoins-110121 https://www.sec.gov/news/statement/gensler-statement-preside...
lvl100 5y ago
Gary Gensler should be the LAST person to regulate crypto.
InternetPerson 5y ago
When people defend cryptocurrencies online, sometimes it's because they're invested in it and they're hoping to get rich. (Only a real Sherlock Holmes could notice something this subtle. I eagerly await my upvotes!!)
- sanderjd 5y ago
  This strikes me as a catch-22. People who research cryptocurrencies / blockchains and conclude they are promising technologies are likely to both invest in them and also tell people they are promising. But that doesn't tell you anything about the direction of causality. It could be either "I invested in them so I tell people they're promising" or "I think they are promising so I invested in them". I remember investing in Microsoft in the 90s and Apple when the iPhone came out and also telling lots people that I thought Windows 98 was really great and that the iPhone was a huge deal, but the primary reason I told people those things was not because of my investment in the stocks, rather I invested in the stocks because I thought those things were true.
- Acrobatic_Road 5y ago
  And many of the people who show up to hate on cryptocurrencies participate in what amount to support groups for people who had the opportunity to buy but didn't.
sneak 5y ago
The elephant in the room is that the US Congress has insufficient power to regulate stablecoins effectively, any more than they can effectively ban the consumption of marijuana in the USA. This is a lot of handwaving and sure they can make Coinbase stop supporting USDT but that's not going to do it.
darthvoldemort 5y ago
How can the SEC and the Treasury let these crypto coins continue to exist when it's so rife with scams? Based on the TOS of Tether, it's clearly as scam with no protections for any investors. Why hasn't the US government regulated all these coins out of existence? I feel like it's turning into a systemic risk to our economy given how much money is being turned towards them.
- kevingadd 5y ago
  Crypto-oriented startups and their investor backers are spending time and money on lobbying, that probably has at least a small effect in terms of slowing any regulatory momentum. i.e. https://www.wsj.com/articles/bitcoin-fans-are-suddenly-a-political-force-11629115380 https://www.wsj.com/articles/bitcoin-fans-are-suddenly-a-pol...
from 5y ago
The party will come to an end soon. There are people at Treasury (FINCEN and OFAC) who find the idea of people being able to transact even thousands of dollars without them knowing about it repulsive. Having coins tied to dollars is begging for regulatory action.
- jmull 5y ago
  If you don’t have strong checks in place to address fraud, lack of transparency and instability, you are essentially forcing regulators to get involved.
thegasman 5y ago
It would be interesting to do a find “stablecoin” and replace with “fiat currency” command on this paper to see how it reads
xwdv 5y ago
My head is swirling with all the coins coming out these days. Have these coins all been around for some time or am I just hearing about them now? I don’t know how this crypto shit will ever end. It’s basically speculation that there will always be a greater fool to buy your coin. Zero fundamentals. Can this really go on forever? Or will there be an ultimate bag holder at some point?
MisterBiggs 5y ago
The worries about stablecoins being used for day to day transactions are pretty interesting. I haven't seen any interest in that online and I personally think transacting with stablecoins would be the worst of the cryptocurrency and credit card worlds.
lowkey 5y ago
Right now the intellectually curious can earn 19.5% in DeFi on stablecoins using Anchor protocol. No, it isn't FDIC insured, but insurance is available for 2-3% netting 16~17%. Unlike banks anyone anywhere has access to this free and open monetary network and the returns are 1700~2000 basis points higher than any US bank offers. https://www.reddit.com/r/CryptoCurrency/comments/qjhv42/anchor_protocol_195_apy_return_with_earn_in_terra/ https://www.reddit.com/r/CryptoCurrency/comments/qjhv42/anch... What if this guy is right? "They are not afraid that criminals will use it; they're afraid that all the rest of us will use it." - Andreas M. Antonopoulis
- throaway46546 5y ago
  From the thread: >I've been using Anchor + Mirror to get ~40% APY >It's not as degen as the other Defi, but it's very low risk This just screams scam to me.
  - lowkey 5y ago
    Look into the Terra stablecoin network and read the whitepaper before dismissing it. The returns are very real. There is a reason that decentralized finance is the fastest growing industry in history. You may want to investigate with an open mind.
    - throaway46546 5y ago
      I don't see how there can be risk free 40% gains without them being arbitraged away. It is the equivalent of printing money. If the gains are real the only logical conclusion is that the risks are being underestimated.
    - sizzle 5y ago
      Thoughts on UST? Is it related to Luna?
      - lowkey 5y ago
        UST is the stablecoin pair to Luna which is the native token of the Terra network - an algorithmic stablecoin platform. It's an innovative approach to stablecoins across multiple currencies and it is growing amazingly fast. I would encourage everyone who feels like they missed out on Bitcoin or Ethereum to understand that Decentralized Finance is yet another opportunity of a lifetime. Centralized banking is the legacy play here and it is being disrupted at an amazing pace by DeFi. If you have an open and curious mind and are able to do some research down the rabbit hole, this is a space that will provide handsome returns to the enthusiast - already has.
m00dy 5y ago
I want to ask what you guys think about BUSD ? It looks like they are in US and regulated. [0]: https://paxos.com/busd/ https://paxos.com/busd/
westurner 5y ago
It may not be immediately obvious that all banks run their own "stablecoin": LD: "Ledger Dollars". How do "internal bank ledger dollars" differ from stablecoins? As well, very many countries of the world "peg" their currency to the USD. From https://www.investopedia.com/terms/c/currency-peg.asp https://www.investopedia.com/terms/c/currency-peg.asp : > Countries will experience a particular set of problems when a currency is pegged at an overly low exchange rate. On the one hand, domestic consumers will be deprived of the purchasing power to buy foreign goods. Suppose that the Chinese yuan is pegged too low against the U.S. dollar. Then, Chinese consumers will have to pay more for imported food and oil, lowering their consumption and standard of living. On the other hand, the U.S. farmers and Middle East oil producers who would have sold them more goods lose business. This situation naturally creates trade tensions between the country with an undervalued currency and the rest of the world. > Another set of problems emerges when a currency is pegged at an overly high rate. A country may be unable to defend the peg over time. Since the government set the rate too high, domestic consumers will buy too many imports and consume more than they can produce. These chronic trade deficits will create downward pressure on the home currency, and the government will have to spend foreign exchange reserves to defend the peg. The government's reserves will eventually be exhausted, and the peg will collapse. > When a currency peg collapses, the country that set the peg too high will suddenly find imports more expensive. That means inflation will rise, and the nation may also have difficulty paying its debts. The other country will find its exporters losing markets, and its investors losing money on foreign assets that are no longer worth as much in domestic currency. https://en.wikipedia.org/wiki/List_of_countries_by_exchange_rate_regime https://en.wikipedia.org/wiki/List_of_countries_by_exchange_... Is this the game: (A USD / B USD) * X = (C LD / D LD) Who decides what the monetary bases - B USD and D LD - are? Should online games just keep issuing in-game currency? Are gift cards also stablecoins? Perhaps "All of the World’s Money and Markets in One Visualization" could be updated to indicate which of the depicted assets are stablecoins and which are derivatives? https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/ https://www.visualcapitalist.com/all-of-the-worlds-money-and... Are there some historical examples of centralized economic planning resulting in currency devaluation and subsequent directly resultant unrest?
- westurner 5y ago
EVa5I7bHFq9mnYK 5y ago
The backing of stable coins is not an issue. The real issue is: 1) Anyone can send a stablecoin to anyone without any permission. People do it currently at a large scale. That is not acceptable to the governments because it takes a crucial element of control away from them. 2) Unlike bitcoin, all stable coins have a single point of failure - a bank account that holds funds can be frozen, a CEO of a company can be arrested. That's why all centralized stable coins will be decommissioned sooner or later.
SZJX 5y ago
Maybe I'm missing something obvious, but exchanges like Kraken actually offer margin trading on pairs such as USDT/USD and USDT/EUR. https://support.kraken.com/hc/en-us/articles/227876608-Margin-trading-pairs-and-their-maximum-leverage https://support.kraken.com/hc/en-us/articles/227876608-Margi... If somebody (probably a non-US-person who is allowed to do margin trading there) is convinced that Tether will tank, why can't they just go on such exchanges and initiate a short? Is the fear that the exchange itself will become insolvent after the crash, and you won't be able to withdraw your fiat out of it in the end?

654 points by TheAlchemist 5y ago

TL;DR - Stablecoin issuers should operate under same regulatory structure as banks !

m0zg 5y ago

Treasury at least knows what it's talking about. The Congress (whom they're asking for legislation here) not only won't understand any of this, but worse, will write whatever laws big bank lobbyists want them to write, with the primary intent to make all of this non-viable for anyone but Goldman Sachs and JPMorgan through regulatory capture. I'll leave it to you to decide whether this preferential treatment is better than the current lax regulation.

fieldcny 5y ago

The issue with trying regulate this calamity is that this is inevitably going to lead to a bail out of this scam when it collapses. It’s worse than the rail road trusts in the 20s

deleted 5y ago

[deleted]

vineyardmike 5y ago

> To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level. > To address concerns about payment system risk, in addition to the requirements for stablecoin issuers, legislation should require custodial wallet providers4 to be subject to appropriate federal oversight. Congress should also provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities that are critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards. > To address additional concerns about systemic risk and concentration of economic power, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. Supervisors should have authority to implement standards to promote interoperability among stablecoins. In addition, Congress may wish to consider other standards for custodial wallet providers, such as limits on affiliation with commercial entities or on use of users’ transaction data. AKA StableCoin operators should be banks. (Stable Coins will be bank notes)?

colinmhayes 5y ago
Tether was invented to provide bitfinex with banking services after the banks refused to deal with them. Not super surprising that regulators are treating this banking replacement as a bank.
eightysixfour 5y ago
I think this is a pretty decent set of recommendations considering the power stablecoin issuers have, personally. > Stable Coins will be bank notes. Exactly.
pjc50 5y ago
> Stable Coins will be bank notes What do you call an institution that takes deposits and lends them out, such as by buying ""commercial paper"" that Tether repeatedly talks about? A bank. (Or possibly a money market fund)
- the_optimist 5y ago
  You call it a 0% interest money market fund. You do not call it a bank. A bank does something entirely different: create 'bank loans'. A non-bank does not have the ability to create bank loans.
  - JumpCrisscross 5y ago
    > A bank does something entirely different: create 'bank loans'. A non-bank does not have the ability to create bank loans. I agree with you, broadly, though I have to comically point out that Tether was absolutely also originating loans.
    - the_optimist 5y ago
      This might be right (though to my knowledge, it's not what they claim to be doing). To originate a loan, Tether would simply issue and lend their coin (Tether), specifically ignoring dollar backing. Can you provide a discussion of them doing this?

deleted 5y ago

[deleted]

frisco 5y ago

svachalek 5y ago
I think it would make them illegal. As it probably should, I'm not aware of any that are not an elaborate scam.
- __MatrixMan__ 5y ago
  I read your comment and then started reading about at MakerDAO's governance model. It doesn't jump out as a scam to me, just a clever bit of game theory. What am I missing?
  - deleted 5y ago
    [deleted]
  - bduerst 5y ago
    DAO is crypto backed by crypto. I think GP is referring to the lack of transparency with fiat-backed stable coins, like tether.
- sputknick 5y ago
  Do you have any thoughts on how you would do that? Isn't that as practical as outlawing Bitcoin?
  - svachalek 5y ago
    I'm not the government or even a lawyer. But I'd imagine they'd block companies from trading Bitcoins for dollars or mining Bitcoin. Turn off all the ETFs and options trading. Say Tesla and MicroStrategy can't hold it in their treasury. I doubt they can make it disappear but that would certainly put a dent in US adoption.

pulse7 5y ago

This is a "regulated cybercurrency".

gt565k 5y ago

Value of crypto got too big, now the govt wants in. Can't say we didn't see this coming. This is good for crypto as it opens the doors for mainstream and institutional adoption at higher levels. Plus, stable coins should be regulated and audited. Looking at you tether.

animal_spirits 5y ago
I see it more as People who are given the job to protect the American People and the American economy from financial manipulation see that stablecoins have a high risk of financial manipulation rather than "govt wants in"

natch 5y ago

> Stablecoins are digital assets that are designed to maintain a stable value relative to… Is this always technically true? Or are they sometimes just (inserting word) *purportedly* designed to do that?

robmerki 5y ago

Tether and other pose a critical systemic risk to all cryptocurrency. Anything to increase trust/transparency with stablecoins is a big with for crypto.

Aaronstotle 5y ago
Tether absolutely poses a large risk to crypto. If companies do issue stablecoins, they should have links to third-party attestations that verify proof of reserves like Circle (USDC) does. Tether could end all of their "FUD" if they ever published such a report. Circle's reporting: https://www.circle.com/en/usdc#transparency https://www.circle.com/en/usdc#transparency (edited to change audits --> attestations)
- yashap 5y ago
  IMO “FUD” about Tether will never end, because it’s a fairly clear scam. The fear/uncertainty/doubt around it is not due to an easily remedied lack of transparency, the lack of transparency is just an attempt to disguise the scam. I see Tether heading towards collapse, not legitimacy, and any actual increase in transparency would just hasten the collapse.
- deleted 5y ago
  [deleted]
- lavezzi 5y ago
  Circle are not audited, Grant Thornton provide an attestation. There's a big difference.
  - Aaronstotle 5y ago
    This is true, I'll edit my comment. I still think a third-party attestation provides a lot more trust than the shady-stuff going on with Tether.
    - salawat 5y ago
      An attestation is doesn't mean squat. It means someone witnessed something once and some agreement was executed in accordance with some policy. You want an audit. I have been there, seen the procedures, run the numbers, and independently verified that when followed yield the same result as reported. It's the difference between "Seem's legit" and "The numbers check out".

colatkinson 5y ago

From the "Recommendations" section: > Legislation should address the risks outlined in this report by establishing an appropriate federal prudential framework for payment stablecoin arrangements.29 In particular, with respect to stablecoin issuers, legislation should provide for supervision on a consolidated basis; prudential standards; and, potentially, access to appropriate components of the federal safety net. To accomplish these objectives, legislation should limit stablecoin issuance, and related activities of redemption and maintenance of reserve assets, to entities that are insured depository institutions. > The standards to which these [insured depository] institutions are subject include capital and liquidity standards that are designed to address safety and soundness and, for the largest banking organizations, also include enhanced prudential standards that address financial stability concerns. Under the Federal Deposit Insurance Act, insured depository institutions also are subject to a special resolution regime that enables the orderly resolution of failed insured depository institutions by, among other mechanisms, protecting customers’ insured deposits, and according priority to deposit claims over those of general creditors, and limits any potential negative systemic impacts in the event of bank failure. I suspect that we're going to very quickly (by legislative standards) find out which stablecoins are backed by real currency and which are "backed by real currency." I'm betting short-term there'll be some issues with liquidity, especially on smaller exchanges. But longer-term, having the gaps filled in by stabler stablecoins can't hurt.

X6S1x6Okd1st 5y ago
we already know that USDT isnt actually backed by currency
sanderjd 5y ago
Exactly. Regulation can only be long-term good for the space, which is sorely lacking in legitimacy.
- __MatrixMan__ 5y ago
  I'm not so sure. There's a type of person who would deem the US Government having a privileged role in coin governance as a legitimacy-reducing factor for that coin, and that type of person is over-represented in crypto circles. Also there's a possibility that whatever coins decide to comply end up spending their reserves on humans-in-the-loop to ensure compliance, thereby giving an advantage to the noncompliant coins. Something analogous to this happened where I'm from: We voted to legalize recreational cannabis, but most people still use the black market because regulatory burdens put the legal shops at too great of a disadvantage to be competitive.

nostrademons 5y ago

Interesting to read this with an eye on the authors' mindset. Their understanding of stablecoins seems largely centered on Tether (and to a lesser extent, BUSD/USDC). A lot of their understanding is incorrect when applied to algorithmic stablecoins like Dai, eg. there is no central issuing authority; Dai is minted in exchange for Ethereum (and other cryptocurrencies), not fiat currencies; the effect of a run on Dai is unlikely to spill over into the mainstream financial system; a "custodial wallet" in DeFi is not a company but just an Ethereum address, i.e. a hash of a public/private keypair. Overall I get the sense that the government is still people/organization centric and cannot wrap its head around a future where reality is determined by computer code and people are bit players in the script.

orasis 5y ago
Legislation will ensure that reality continues to be determined by legislation, not computer code.
toomuchtodo 5y ago
That computer code runs somewhere and every IP address leads to a person eventually.
- nostrademons 5y ago
  Except it doesn't. On Ethereum and other blockchains, that computer code runs everywhere, and every IP address is a gossip protocol that may have originated an undetermined number of hops backwards.
- deleted 5y ago
  [deleted]
- vmception 5y ago
  The lifecycle of an autonomous program (colloquially called smart contract) is that it is deployed by an address of a human being or that human being's server, and then the address' first transaction to the autonomous program is to delete the address' administrative capabilities of that program. Autonomous programs live on every validating node of that blockchain, and those validating nodes have no knowledge of the behavior of those programs. The deployment feature publishes the code on all validating nodes, no different than any other transaction. All future behavior of the autonomous program comes from individual users who do not control it. So for what grandparent poster was referring to, stablecoins collateralized by digital assets, all the collateral is provided by users and all the stablecoins issued were caused by users providing collateral. Those users clearly do not run the autonomous program, no different than a depositor at a bank is not responsible for the bank when they ask for a loan from the bank. There is nobody to sanction, and there is no way to disable the autonomous program that accepts collateral and issues collateralized stablecoin loans. Also, within EVMs (a type of development platform, growing category of blockchains), the users do not have a record of an IP address (although the node they connect to can record it, to mitigate that the user can run a relaying node from their personal computer. relaying nodes forward to validating nodes. no nodes in an EVM have knowledge of other nodes IP address and no nodes are even aware of which node saw a transaction first). And regarding the tracing of their onchain address, a user can provide collateral from a virgin address funded by other autonomous programs like Tornado which sufficiently mix funds. The programs and the regulators are not capable of factoring in our opinion about that.

sschueller 5y ago

If the US would just provide its own stable coin it would kill all other USD stable coins and there would be no more issues. Who would want tether if you can get government backed USD stable coins?

paulgb 5y ago
> Who would want tether if you can get government backed USD stable coins? People who wanted to hold USD outside of the US's jurisdiction, for one. I suspect this is one reason that apparently “more legitimate” stablecoins haven't caused huge Tether outflows.
trophycase 5y ago
Nobody. The alternative to government backed USD stable coins isn't tether. It's algorithmic stablecoins (FEI, FRAX, etc.) and collateralized stablecoins (DAI, MIM, LUSD, DOLA, etc.).
sanderjd 5y ago
Agreed, a USD CBDC is the right answer, but also seems unlikely to happen.
baby 5y ago
It doesn’t mean that the US stablecoin would be easily usable on different cryptocurrencies, and easily swappable across different cryptocurrencies.

felixbraun 5y ago

Interesting to see Mastercard, Square, Stripe, FIS, Fiserv and Visa all mentioned in "Market Participants". None of those actively today use/settle stablecoins publicly?

inter_netuser 5y ago
all of the above are heavily involved in crypto.
TheAlchemist 5y ago
Also no mention of FTX. Pretty surprising given their importance in the market.
vineyardmike 5y ago
> None of those actively today use/settle stablecoins publicly? No but they settle financial transactions today, and the SEC is basically saying there should be no difference.
- JumpCrisscross 5y ago
  > No but they settle financial transactions today, and the SEC is basically saying there should be no difference This report is from the Treasury. Not the SEC. Also, the SEC doesn't regulate financial transactions. Just securities and exchanges. The SEC has argued that stablecoins are securities. That is an interesting argument, and I sort of see both sides of it, but somewhat unrelated to this paper.
rewtraw 5y ago
I don't believe they support them today, but all of these companies have announced plans to adopt crypto in some form, including stablecoin support or Ethereum-based settlement.
spir 5y ago
Visa uses Ethereum mainnet today (for about 6 months or more?) to settle obligations between a small subset of their merchants whose businesses are in crypto.

kim0 5y ago

For a stable coin to actually work, it needs to be private and algorithmic. The only such crypto I know of, is Haven protocol. This is based on a fork of Monero the largest fungible crypto network, with a system of private synthetic assets on top. Things like synthetic USD, CHF, GBP, also gold and silver...etc. If you find this interesting, read more at https://havenprotocol.org/knowledge/ https://havenprotocol.org/knowledge/

andred14 5y ago
Haven is cool but the Secret Network (SCRT) is better Imo :) I don't like how the wallet for Haven is web based ie. if the website goes down then we lose access to our funds? In December the Shade protocol and associated stable coin comes out for Secret it's going be awesome. https://shadeprotocol.io/ https://shadeprotocol.io/ https://scrt.network https://scrt.network

gzer0 5y ago

This is specifically referring to non-algorithmic stablecoins. "Stablecoins that are purportedly convertible for an underlying fiat currency are distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets. Because of their more widespread adoption, this discussion focuses on stablecoins that are convertible for fiat currency."

chizhik-pyzhik 5y ago
This is a very good point. The risk profile of centralized stablecoins like Tether and USDC is way, way different from something algorithmically controlled like DAI.
- X6S1x6Okd1st 5y ago
  Although DAI allows minting with USDC right now
- dcolkitt 5y ago
  This shouldn’t be surprising. Permissionless systems often innovate orders of magnitude faster than permissioned systems. So many of these threads are filled with comments of the form “well why do we actually need a blockchain for that? Can’t we just do the thing with centralized databases?” But the point is after 50 years the centralized databases haven’t built those systems. Smart contracts, and instant finality transfers, and a public identity tied to private keys could all exist on ACH. Yet they only happened when blockchains came along. Blockchains aren’t a technical innovation, they’re a sociological innovation. They remove the responsibility of a centralized administrator if shit hits the fan. Visa won’t allow smart contracts in its network, because it has too much to lose. In Ethereum if the DAO breaks there’s no one to sue. Result smart contracts exist in Ethereum but not Visa. Same story holds true with the Internet. Do we really need a decentralized network designed to withstand a nuclear war? Surely a single telco network could just as easily serve up websites. Except it never did. The Internet won because it was permissionless and therefore innovation occurred much more rapidly.

Animats 5y ago

This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the price of Etherium drops more than 1/3. Etherium dropped by half back in May 2021, but recovered. DAI could have crashed at that time if it faced a net outflow. It didn't, though. The real question is what happens in the next recession.

dustingetz 5y ago
Risk is that a tether run causes all of crypto to collapse, not just USDT. How many actual dollars are in the system? Everything real has been exfiltrated through electricity bills, taxes and early adopters selling, the entire crypto economy is a hollow shell, leveraged on retail deposits.
- wpietri 5y ago
  Exactly. Ultimately cryptocurrencies are a negative-sum game in that they take in real money and just move that money around, while spending some on overhead. In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more than the value of the inputs, making it a positive-sum effort.
  - wyager 5y ago
    The positive externalities from sound money and the concomitant demonetization of other assets (like real estate, oil, etc.) are massive, especially in the long term.
    - arcticbull 5y ago
      Real estate and oil are not money and therefore cannot be demonetized. One is a productive asset, the other a commodity. Words have meaning.

dexwiz 5y ago

All these coins are proven to be worthless. When speculation is making everyone money, the money isn't worth much. Edit: Love the immediate fear downvote. No one wants to hear their gold is really just shiny dirt.

dragontamer 5y ago
The downvotes are because "worthless" is hyperbolic and unhelpful. Clearly, the coins have value because someone out there feels like paying money for them. More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize. Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins. ------------------ The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple: Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt. A stable-coin, is simply the senior-debt on some other cryptocoin. ------- Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000. But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place). When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000. When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000. This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior. Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius. ------ You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money. Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it. Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however. It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.

Zamicol 5y ago

I've previously named Tether "rat poison" and I hope they are regulated/banned. Tether is an easy problem to "solve", and imho, should fall under existing regulation. However, I would love to see an explanation on how the treasury recommendation of regulating stablecoins as banks should apply to (what I see as beneficial) "algorithmic"/DAO stablecoins. The treasury's continued omissions, ignoring the real elephant in the room Maker, will only confuse regulators instead of addressing the "hard problem" of Maker. There are gorging differences between a centralized and "trusted" service like Tether and the algorithmic, automatic, decentralized, and trustless Maker.

okareaman 5y ago

Historically, we've had major bubbles and crashes in all kinds of financial markets, from stocks and bonds, to property and dotcom stocks. Is there any reason to believe that cryptocurrency is more stable and we won't have a catastrophic crash?

mailbag 5y ago
Arguably, we've already seen multiple catastrophic crashes in cryptocurrencies.
- WhisperingShiba 5y ago
  Brother, you simply don't understand. A 50% swing in a day is just volatility.
- epinephrinios 5y ago
  And the market rebounded without a government bailout.
  - seoaeu 5y ago
    Which is pretty clear evidence that those crashes weren't "catastrophic". That doesn't provide any proof that a future crash won't be substantially worse
    - epinephrinios 5y ago
      Similar crashes in the TradFi space would be considered worse than "catastrophic". Media would struggle to find words to describe them.
  - TrackerFF 5y ago
    ...and that's the dilemma. Did the market rebound because there's a organic growth of buyers, or did printing tethers out of thin air help this?

fancyfredbot 5y ago

"If well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options." Anyone else find it bizarre that the solution to slow payments might turn out to be distributed ledgers based on proof of work? It feels like the last thing you'd expect - especially since we're starting from a position of managing money through trusted centralised authorities. It's actually really weird we can't settle payments in seconds already.

mgamache 5y ago
All traditional methods use gatekeepers that control the flow of money. If you can't do what you want with your money is it really yours? The Trustless nature of BTC involves a seeming waste of energy, but you get a lot in return (like ownership of your money).
- fancyfredbot 5y ago
  Sure, but my point was not really about trust. My point is that speed is easier to achieve without Blockchain than with it. It's strange that the centralised solution is slower.
  - sneak 5y ago
    The centralized, heavily regulated solution is slower. If they could impose all the regulation they want on permissionless, trustless p2p decentralized networks, those would be slow and massively expensive, too. Fortunately, they haven't the power. They can attack the edges (and ultimately every centralized stablecoin can be attacked) but they can't stop, say, uniswap.
  - anonporridge 5y ago
    The removal of human trust is the source of the speed. It's effectively the automation of slow, human intermediaries in the financial network that allows you to create a programmable money that runs 24/7 and is open and permissionless to boot. And with this programmable network, we can see an explosion of innovation, because nobody needs to wait around for a person to approve anything you want to try.

deleted 5y ago

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andred14 5y ago

The government needs to go away they are doing nothing positive for the people. There are no laws written for cryptocurrencies and it should stay that way. What gives them the right to just make up laws about stuff when they feel like it? Cryptocurrencies are hurting nobody but government and their "regulations" are definitely hurting people. Therefore, by common law, the government cannot "regulate" anything that is not doing any harm just because they feel like it. Government should to go back to fixing roads and infrastructure. That is all we need from them the rest is tyranny.

alex504 5y ago

Would the act of regulating Tether and other stablecoins in and of itself crash the market? If the government shut Tether down, wouldn't that cause the run they are afraid of? The money is already missing, it is only a question of when the market realizes it.

clintonb 5y ago
The best time to stop the fraudulent scheme was yesterday. The next best time is now. It's better the Tether market crash now than after it's grown even more. This will suck for the folks that lose money, but it was going to hurt at some point.

Trias11 5y ago

Word "risk" appears in this doc 130+ times. However the sole existence of stablecoins and crypto is due to the fact that legacy, corrupt financial institutions and irresponsible government fiscal policies present the biggest risk to people wellbeing. So all these "risk" talks is a prerequisite for more taxes and more regulations that will only accelerate the natural evolution away from outdated, corrupt, centralized legacy institutions.

MisterBiggs 5y ago
While I would agree that the government is strongly incentivized to try and regulate crypto I think its hard to argue that stablecoins aren't ticking time bombs. Most of them clearly don't have the assests to back up their market caps and with 138 billion USD in market cap [1] they would certainly cause a crash of at least cryptocurrency if they became worthless. [1] https://www.coingecko.com/en/categories/stablecoins https://www.coingecko.com/en/categories/stablecoins

sub7 5y ago

From a Coinbase exec: "Tether is a ticking time bomb. Whenever it goes off, it'll be a 70-80% market correction for 2-3 years" Crypto continues to help nobody and achieve nothing in the real world. This administration has been criminally slow in shutting it down, lobby is strong.

webinvest 5y ago
No there won’t be a big long term correction from Tether because there are dozens of other stable coins now for people to temporarily sell into. There’s also the ability to short crypto and buy puts on crypto. All of that provides ways for speculators, investors, middle class savers, and early technology adopters to stay in the game. You’re like a doomsday predictor that will never see a doomsday happen. No real value? The AAVE crypto platform alone already holds more value ($23B) than the entire market cap of Ecuador’s stock market ($11B). The AAVE platform is literally more valuable than a country. AAVE is just one of many applications built on the Ethereum network. It speaks nothing of Uniswap, Maker, Yearn, Balancer, USDC, Compound, and many others. Bitcoin alone secures over 1 Trillion dollars.
- notahacker 5y ago
  The Quito stock exchange consists of over 300 companies in farming, forestry, power generation, medical care etc. They have physical and human capital and earn profits from their paying customers, whether or not people want to buy stocks which offer them a share of this profit The AAVE platform consists of individuals lending recently printed tokens to each other to buy other recently printed tokens in what is essentially a zero sum game with no connection to the real world unless they can convince outsiders to pay even more money for some of the tokens. The fact the latter is notionally valued at higher than the former pretty much underlines the OP's point about the lack of "real value" underpinning the whole thing...
  - webinvest 5y ago
    The difference is momentum and trust. Crypto is underlined by trust. Permissionless trust and cross-border trust. Either people don’t trust the Quito stock exchange to return all of the money back to shareholders or they don’t see their money going up in value there. So people don’t give them their money.

chairmanwow1 5y ago

I have been waiting for some regulatory movement in this space. I am not really familiar enough with government agencies to know how a document like this filters into Congress for actual regulations to start getting drafted and debated, but to my ignorant eyes this is great news!

LatteLazy 5y ago

The only real point of stable coins seems to be tax/sanctions evasion. Given that, no respectable institution (tier 1 banks etc) will run one. Given that, all stable coins are only stable till the disreputable nature of the operator catches up with them...

Lordarminius 5y ago
> The only real point of stable coins seems to be tax/sanctions evasion. Do you have any hands on experience with crypto ?
dbmikus 5y ago
Stablecoins are useful if you want to participate in DeFi with stable currencies.
andred14 5y ago
[dead]

neaanopri 5y ago

Fed should make a commitment NOT to bail out crypto people under ANY circumstances!

webinvest 5y ago
They might one day bail out the banks that use Ripple (XRP)… as well as the banks that don’t use it. Bitcoin was literally created due to bailouts. Just read the genesis block of Bitcoin.
- bduerst 5y ago
  Ripple has a lot of "partner" banks, not actual users. They're notorious for hamming that up: https://www.forbes.com/sites/jasonbloomberg/2019/03/01/is-ripple-a-scam/ https://www.forbes.com/sites/jasonbloomberg/2019/03/01/is-ri...
asasidh 5y ago
the people who "crypto" and the people who look for handouts are two very different groups.
- sneak 5y ago
  That was true only in limited scope and a very long time ago. Most people in the US in the space just use Coinbase and in practice use that just like any other bank.

aetherspawn 5y ago

> Conversely, mass adoption of a well-regulated and supervised stablecoin with strong AML/CFT protections built into the stablecoin could provide greater transparency into illicit financial activity and could mitigate ML/TF risks, especially if the stablecoin takes market share away from riskier alternatives. Interesting. The blockchain is public, so they see benefit in being able to audit it.

xtat 5y ago
hn is beginning to understand

rburhum 5y ago

SEC Comments about this report: https://www.sec.gov/news/statement/gensler-statement-presidents-working-group-report-stablecoins-110121 https://www.sec.gov/news/statement/gensler-statement-preside...

lvl100 5y ago

Gary Gensler should be the LAST person to regulate crypto.

InternetPerson 5y ago

When people defend cryptocurrencies online, sometimes it's because they're invested in it and they're hoping to get rich. (Only a real Sherlock Holmes could notice something this subtle. I eagerly await my upvotes!!)

sanderjd 5y ago
This strikes me as a catch-22. People who research cryptocurrencies / blockchains and conclude they are promising technologies are likely to both invest in them and also tell people they are promising. But that doesn't tell you anything about the direction of causality. It could be either "I invested in them so I tell people they're promising" or "I think they are promising so I invested in them". I remember investing in Microsoft in the 90s and Apple when the iPhone came out and also telling lots people that I thought Windows 98 was really great and that the iPhone was a huge deal, but the primary reason I told people those things was not because of my investment in the stocks, rather I invested in the stocks because I thought those things were true.
Acrobatic_Road 5y ago
And many of the people who show up to hate on cryptocurrencies participate in what amount to support groups for people who had the opportunity to buy but didn't.

sneak 5y ago

The elephant in the room is that the US Congress has insufficient power to regulate stablecoins effectively, any more than they can effectively ban the consumption of marijuana in the USA. This is a lot of handwaving and sure they can make Coinbase stop supporting USDT but that's not going to do it.

darthvoldemort 5y ago

How can the SEC and the Treasury let these crypto coins continue to exist when it's so rife with scams? Based on the TOS of Tether, it's clearly as scam with no protections for any investors. Why hasn't the US government regulated all these coins out of existence? I feel like it's turning into a systemic risk to our economy given how much money is being turned towards them.

kevingadd 5y ago
Crypto-oriented startups and their investor backers are spending time and money on lobbying, that probably has at least a small effect in terms of slowing any regulatory momentum. i.e. https://www.wsj.com/articles/bitcoin-fans-are-suddenly-a-political-force-11629115380 https://www.wsj.com/articles/bitcoin-fans-are-suddenly-a-pol...

from 5y ago

The party will come to an end soon. There are people at Treasury (FINCEN and OFAC) who find the idea of people being able to transact even thousands of dollars without them knowing about it repulsive. Having coins tied to dollars is begging for regulatory action.

jmull 5y ago
If you don’t have strong checks in place to address fraud, lack of transparency and instability, you are essentially forcing regulators to get involved.

thegasman 5y ago

It would be interesting to do a find “stablecoin” and replace with “fiat currency” command on this paper to see how it reads

xwdv 5y ago

My head is swirling with all the coins coming out these days. Have these coins all been around for some time or am I just hearing about them now? I don’t know how this crypto shit will ever end. It’s basically speculation that there will always be a greater fool to buy your coin. Zero fundamentals. Can this really go on forever? Or will there be an ultimate bag holder at some point?

MisterBiggs 5y ago

The worries about stablecoins being used for day to day transactions are pretty interesting. I haven't seen any interest in that online and I personally think transacting with stablecoins would be the worst of the cryptocurrency and credit card worlds.

lowkey 5y ago

Right now the intellectually curious can earn 19.5% in DeFi on stablecoins using Anchor protocol. No, it isn't FDIC insured, but insurance is available for 2-3% netting 16~17%. Unlike banks anyone anywhere has access to this free and open monetary network and the returns are 1700~2000 basis points higher than any US bank offers. https://www.reddit.com/r/CryptoCurrency/comments/qjhv42/anchor_protocol_195_apy_return_with_earn_in_terra/ https://www.reddit.com/r/CryptoCurrency/comments/qjhv42/anch... What if this guy is right? "They are not afraid that criminals will use it; they're afraid that all the rest of us will use it." - Andreas M. Antonopoulis

throaway46546 5y ago
From the thread: >I've been using Anchor + Mirror to get ~40% APY >It's not as degen as the other Defi, but it's very low risk This just screams scam to me.
- lowkey 5y ago
  Look into the Terra stablecoin network and read the whitepaper before dismissing it. The returns are very real. There is a reason that decentralized finance is the fastest growing industry in history. You may want to investigate with an open mind.
  - throaway46546 5y ago
    I don't see how there can be risk free 40% gains without them being arbitraged away. It is the equivalent of printing money. If the gains are real the only logical conclusion is that the risks are being underestimated.
  - sizzle 5y ago
    Thoughts on UST? Is it related to Luna?
    - lowkey 5y ago
      UST is the stablecoin pair to Luna which is the native token of the Terra network - an algorithmic stablecoin platform. It's an innovative approach to stablecoins across multiple currencies and it is growing amazingly fast. I would encourage everyone who feels like they missed out on Bitcoin or Ethereum to understand that Decentralized Finance is yet another opportunity of a lifetime. Centralized banking is the legacy play here and it is being disrupted at an amazing pace by DeFi. If you have an open and curious mind and are able to do some research down the rabbit hole, this is a space that will provide handsome returns to the enthusiast - already has.

m00dy 5y ago

I want to ask what you guys think about BUSD ? It looks like they are in US and regulated. [0]: https://paxos.com/busd/ https://paxos.com/busd/

westurner 5y ago

It may not be immediately obvious that all banks run their own "stablecoin": LD: "Ledger Dollars". How do "internal bank ledger dollars" differ from stablecoins? As well, very many countries of the world "peg" their currency to the USD. From https://www.investopedia.com/terms/c/currency-peg.asp https://www.investopedia.com/terms/c/currency-peg.asp : > Countries will experience a particular set of problems when a currency is pegged at an overly low exchange rate. On the one hand, domestic consumers will be deprived of the purchasing power to buy foreign goods. Suppose that the Chinese yuan is pegged too low against the U.S. dollar. Then, Chinese consumers will have to pay more for imported food and oil, lowering their consumption and standard of living. On the other hand, the U.S. farmers and Middle East oil producers who would have sold them more goods lose business. This situation naturally creates trade tensions between the country with an undervalued currency and the rest of the world. > Another set of problems emerges when a currency is pegged at an overly high rate. A country may be unable to defend the peg over time. Since the government set the rate too high, domestic consumers will buy too many imports and consume more than they can produce. These chronic trade deficits will create downward pressure on the home currency, and the government will have to spend foreign exchange reserves to defend the peg. The government's reserves will eventually be exhausted, and the peg will collapse. > When a currency peg collapses, the country that set the peg too high will suddenly find imports more expensive. That means inflation will rise, and the nation may also have difficulty paying its debts. The other country will find its exporters losing markets, and its investors losing money on foreign assets that are no longer worth as much in domestic currency. https://en.wikipedia.org/wiki/List_of_countries_by_exchange_rate_regime https://en.wikipedia.org/wiki/List_of_countries_by_exchange_... Is this the game: (A USD / B USD) * X = (C LD / D LD) Who decides what the monetary bases - B USD and D LD - are? Should online games just keep issuing in-game currency? Are gift cards also stablecoins? Perhaps "All of the World’s Money and Markets in One Visualization" could be updated to indicate which of the depicted assets are stablecoins and which are derivatives? https://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization-2020/ https://www.visualcapitalist.com/all-of-the-worlds-money-and... Are there some historical examples of centralized economic planning resulting in currency devaluation and subsequent directly resultant unrest?

westurner 5y ago

EVa5I7bHFq9mnYK 5y ago

The backing of stable coins is not an issue. The real issue is: 1) Anyone can send a stablecoin to anyone without any permission. People do it currently at a large scale. That is not acceptable to the governments because it takes a crucial element of control away from them. 2) Unlike bitcoin, all stable coins have a single point of failure - a bank account that holds funds can be frozen, a CEO of a company can be arrested. That's why all centralized stable coins will be decommissioned sooner or later.

SZJX 5y ago

Maybe I'm missing something obvious, but exchanges like Kraken actually offer margin trading on pairs such as USDT/USD and USDT/EUR. https://support.kraken.com/hc/en-us/articles/227876608-Margin-trading-pairs-and-their-maximum-leverage https://support.kraken.com/hc/en-us/articles/227876608-Margi... If somebody (probably a non-US-person who is allowed to do margin trading there) is convinced that Tether will tank, why can't they just go on such exchanges and initiate a short? Is the fear that the exchange itself will become insolvent after the crash, and you won't be able to withdraw your fiat out of it in the end?