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If anything, I think stablecoins are way more dangerous than the author indicates. People talk about things like Bitcoin as a threat to sovereign currencies, a

If anything, I think stablecoins are way more dangerous than the author indicates. People talk about things like Bitcoin as a threat to sovereign currencies, and they are, as competitors, of sorts. But stablecoins are another matter entirely. One huge aspect of the value of sovereign currencies is that they are instruments of law -- courts will settle in them as a lowest common denominator, and it is safe to use them in all sorts of settings as a result. When dollar-denominated assets appear, they always run the risk of being considered a dollar-equivalent. For example, bank deposits are dollar-denominated, and are considered dollar-equivalent (even dollar-superior, in the sense that there are transactions that you can't legally do with specie, only with bank deposits, like buy stocks). That means that if banks (which are businesses) are not good at doing business, the government is essentially forced to treat them as dollar-equivalents by making them whole. See Savings & Loan Crisis, the GFC, LTCG, etc., etc. Stablecoins piggyback on the legal aspects of dollars, and as long as you treat them as dollar-denominated assets, you're fine. The second you treat them as dollar-equivalents, you run the risk of a change in the value of that asset being something that the government is forced into supporting.

JuliusBranson 5y ago
Stablecoins are dangerous because they have the potential to change the current selection effects on the elite. For one thing, stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al --- normally this is supposed to result in their friends have a larger fraction of money than they previously had. You start with 1 dollar, David at Goldman Sachs starts with 1 dollar, you each have 50% of the wealth in the "nation." David and his friends start printing themselves money, soon they have 99 dollars and you have 1, and you can't compete because they'll lock you up with violence for being a "counterfeiter." That's how inflation works. When there's stablecoin, you just put your dollar in stablecoin before they print the money, the dollar inflates, stablecoin goes up proportionately, you spend the stablecoin and things remain fair. This obviously curtails the ability of the ruling class to reproduce itself. More than that, if the pool of people getting billions through stablecoins is more random than the pool of people who got rich on the dollar, then the ruling class will change to be more representative of the population as a whole. This could cause massive cultural changes, consequently.
- ethbr0 5y ago
  It seems like there's another side to this story you're not mentioning... I think I read about it in history of the 19th and 20th centuries?
  - bmcahren 5y ago
    https://en.wikipedia.org/wiki/Gold_Reserve_Act#:~:text=A%20year%20earlier%2C%20in%201933,some%20jewelry%20and%20collector's%20coins.&text=By%201975%20Americans%20could%20again%20freely%20own%20and%20trade%20gold https://en.wikipedia.org/wiki/Gold_Reserve_Act#:~:text=A%20y....
    - ethbr0 5y ago
      1837 - https://en.m.wikipedia.org/wiki/Panic_of_1837 https://en.m.wikipedia.org/wiki/Panic_of_1837 1873 - https://en.m.wikipedia.org/wiki/Long_Depression https://en.m.wikipedia.org/wiki/Long_Depression 1910 - https://en.m.wikipedia.org/wiki/Panic_of_1910%E2%80%931911 https://en.m.wikipedia.org/wiki/Panic_of_1910%E2%80%931911 1929 - https://en.m.wikipedia.org/wiki/Great_Depression https://en.m.wikipedia.org/wiki/Great_Depression Monetary consistency sounds good, until it doesn't.
- paulgb 5y ago
  Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money, stablecoins don't subvert any party's ability to print money if they are pegged to that money. If you can print USD, and I have a stablecoin pegged to $1 USD, you can just print $1 USD and buy my stablecoin on the open market.
  - JuliusBranson 5y ago
    >Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money You didn't read my comment correctly.
    - 5y ago
AnimalMuppet 5y ago
Wait, you can't legally buy stocks with cash? Why not?
- wayoutthere 5y ago
  KYC laws aimed at anti-money laundering; any large movement of money has to be between trusted parties. Which means a verification process that is more thorough the more money you move around.
  - actually_a_dog 5y ago
    Right, but that just means some paperwork gets filed when you attempt to do large transactions with cash, not that it's literally illegal to do those transactions. I don't understand why the toplevel comment says it's illegal to buy stocks. It seems like it would be merely very difficult, not illegal. I think your biggest problem would be finding a broker that would accept a pile of cash to buy you stocks with, rather than the fact that the transaction needs to be reported to the government.
    - fragmede 5y ago
      They're saying it's illegal because a random person can't just walk into a bank with a proverbial suitcase full of cash, and deposit it, and use that money to buy stocks. It's quite possible, and certain people do it regularly, but these aren't hypothetical people with no background. These are people known to the bank, its manager, have a thoroughly checked back story, and a reason for doing this, likely as the owner of a mostly cash business. It's not a one time "oh I just got lucky at Vegas, don't mind me" story.
      - actually_a_dog 5y ago
        That's not what "illegal" means.
    - andrewla 5y ago
      You are correct; buying a stock with cash is impractical but not illegal or impossible. You cannot transact with an exchange, you cannot transact with a broker or a broker/dealer, using cash -- your cash must be deposited somewhere in order for it to be used. You can do a private sale of stock where you give someone cash and they transfer stock that they own to your name, either through a broker or by signing the transfer form on the back of an actual stock certificate. To actually claim ownership of the stock (to receive proxy and dividends) you must transact with a broker dealer or the issuing agent, which will almost certainly mean that you have to deal with AML and KYC regulations.
weego 5y ago
People talk about things like Bitcoin as a threat to sovereign currencies, and they are, as competitors, of sorts No, they're competitors for the stores of sovereign wealth that are the backing of sovereign currencies.
- worik 5y ago
  How so? Bitcoin is not a store of value, and sovereign currencies (I think I know what that means) are not backed by stores of wealth.
  - SuoDuanDao 5y ago
    Inflationary vs deflationary instruments. Sovereign currencies are typically inflationary because central banks print them to a greater or lesser degree, National Assets like gold or land reserves are typically deflationary. Bitcoin is more the latter.
    - worik 5y ago
      Why are "National Assets" (and what s the definition of that) deflationary? Inflation/deflation is in my experience measured as money V. assets. Assets on their own are neither. Have I got that wrong?
      - SuoDuanDao 5y ago
        No, I think you're right in a technical sense. My point was that, maybe because the relevant timelines are longer for nation-states than households, their easily liquifiable assets tend to rise in value over time. A country might have gold reserves, which reduces the risk of lending to it and lets them borrow at a better interest rate. The gold reserve isn't money, the government sells bonds for money, but it can be converted to money fairly quickly. Bitcoin, similarly, is more of an asset with a fixed supply that can be quickly converted to money. Calling it 'deflationary' is probably some imprecise labeling on my part.
      - tim333 5y ago
HWR_14 5y ago
> That means that if banks (which are businesses) are not good at doing business, the government is essentially forced to treat them as dollar-equivalents by making them whol The federal government also charges the banks for that insurance. It usually is not a loss for the government.
- sbierwagen 5y ago
  The federal government prints dollars. It is never going to take a loss doing that.
  - danielmarkbruce 5y ago
    The federal government does all kinds of things it can take a loss on, and it does in fact take losses. The federal reserve prints dollars and buys government bonds.
    - atq2119 5y ago
      It can be seen as a loss in an accounting sense, but it's not a loss in the sense it would be for you, me, or, say, Apple, because the federal government is the score keeper of the dollar. I like to think of the "losses" which arise from propping up companies (if any, as pointed out it's not necessarily a loss) as subsidies of undesirable behaviour. In other words, they're a very bad thing, just for a different reason.
spiddy 5y ago
> Stablecoins piggyback on the legal aspects of dollars, and as long as you treat them as dollar-denominated assets, you're fine. The second you treat them as dollar-equivalents, you run the risk of a change in the value of that asset being something that the government is forced into supporting. Why is that scenario worse than now? Why is bank the preferred medium to support when they default?
- tim333 5y ago
  It's getting worse because they are becoming more mainstream. The kind of scenario where the government might have to bail out is US Bank lends billions to something like Coinbase which holds lots of Tethers. Then Tether goes to zero, Coinbase bust, US Bank needs bailout. We're not there yet and it's best avoided.
TSiege 5y ago
I was just thinking the same thing. I was looking into [Gemini Dollar](https://www.gemini.com/dollar https://www.gemini.com/dollar) yesterday. It's a stable coin that gives the patina of being FDIC secured. Their website says, "Gemini is a U.S. company regulated by the New York Department of Financial Services. GUSD reserves are eligible for FDIC insurance up to $250,000 per user while custodied with State Street Bank and Trust.¹" Furthermore, Gemini offers 8% interest deposits of their Gemini Dollar. This sounds like a safe bet to an unassuming person. Easy 8% returns with no risk since your initial deposit is FDIC insured, so it's just like any other savings account. BUT ITS NOT. The fine print reads, "FDIC insurance applies only to the USD reserve funds. GUSD exist as ERC-20 tokens on the Ethereum blockchain; tokens are under the user’s self-custody, and are not insured through Gemini." And this is coming from a reputable backer, relative to other stable coins. Then you have Tether which is a ponzi scheme tire fire years in the making and done almost entirely in the open with no consequences. Given that stablecoins like these are used to underpin a lot of the crypto markets, if one of these were to falter I don't see how it couldn't trigger knock on effects bringing down the others and the entire crypto market with it.
- aasasd 5y ago
  Guess I've gotten better-than-average at reading fine print, since the word ‘eligible’ is immediately suspect to me.

JuliusBranson 5y ago

Stablecoins are dangerous because they have the potential to change the current selection effects on the elite. For one thing, stablecoins subvert the ability of the Federal Reserve to print money and give it to their friends at Goldman Sachs et al --- normally this is supposed to result in their friends have a larger fraction of money than they previously had. You start with 1 dollar, David at Goldman Sachs starts with 1 dollar, you each have 50% of the wealth in the "nation." David and his friends start printing themselves money, soon they have 99 dollars and you have 1, and you can't compete because they'll lock you up with violence for being a "counterfeiter." That's how inflation works. When there's stablecoin, you just put your dollar in stablecoin before they print the money, the dollar inflates, stablecoin goes up proportionately, you spend the stablecoin and things remain fair. This obviously curtails the ability of the ruling class to reproduce itself. More than that, if the pool of people getting billions through stablecoins is more random than the pool of people who got rich on the dollar, then the ruling class will change to be more representative of the population as a whole. This could cause massive cultural changes, consequently.

ethbr0 5y ago
It seems like there's another side to this story you're not mentioning... I think I read about it in history of the 19th and 20th centuries?
- bmcahren 5y ago
  https://en.wikipedia.org/wiki/Gold_Reserve_Act#:~:text=A%20year%20earlier%2C%20in%201933,some%20jewelry%20and%20collector's%20coins.&text=By%201975%20Americans%20could%20again%20freely%20own%20and%20trade%20gold https://en.wikipedia.org/wiki/Gold_Reserve_Act#:~:text=A%20y....
  - ethbr0 5y ago
    1837 - https://en.m.wikipedia.org/wiki/Panic_of_1837 https://en.m.wikipedia.org/wiki/Panic_of_1837 1873 - https://en.m.wikipedia.org/wiki/Long_Depression https://en.m.wikipedia.org/wiki/Long_Depression 1910 - https://en.m.wikipedia.org/wiki/Panic_of_1910%E2%80%931911 https://en.m.wikipedia.org/wiki/Panic_of_1910%E2%80%931911 1929 - https://en.m.wikipedia.org/wiki/Great_Depression https://en.m.wikipedia.org/wiki/Great_Depression Monetary consistency sounds good, until it doesn't.
paulgb 5y ago
Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money, stablecoins don't subvert any party's ability to print money if they are pegged to that money. If you can print USD, and I have a stablecoin pegged to $1 USD, you can just print $1 USD and buy my stablecoin on the open market.
- JuliusBranson 5y ago
  >Leaving aside the dubious idea that the Federal Reserve can give their friends the ability to print money You didn't read my comment correctly.
  - 5y ago

AnimalMuppet 5y ago

Wait, you can't legally buy stocks with cash? Why not?

wayoutthere 5y ago
KYC laws aimed at anti-money laundering; any large movement of money has to be between trusted parties. Which means a verification process that is more thorough the more money you move around.
- actually_a_dog 5y ago
  Right, but that just means some paperwork gets filed when you attempt to do large transactions with cash, not that it's literally illegal to do those transactions. I don't understand why the toplevel comment says it's illegal to buy stocks. It seems like it would be merely very difficult, not illegal. I think your biggest problem would be finding a broker that would accept a pile of cash to buy you stocks with, rather than the fact that the transaction needs to be reported to the government.
  - fragmede 5y ago
    They're saying it's illegal because a random person can't just walk into a bank with a proverbial suitcase full of cash, and deposit it, and use that money to buy stocks. It's quite possible, and certain people do it regularly, but these aren't hypothetical people with no background. These are people known to the bank, its manager, have a thoroughly checked back story, and a reason for doing this, likely as the owner of a mostly cash business. It's not a one time "oh I just got lucky at Vegas, don't mind me" story.
    - actually_a_dog 5y ago
      That's not what "illegal" means.
  - andrewla 5y ago
    You are correct; buying a stock with cash is impractical but not illegal or impossible. You cannot transact with an exchange, you cannot transact with a broker or a broker/dealer, using cash -- your cash must be deposited somewhere in order for it to be used. You can do a private sale of stock where you give someone cash and they transfer stock that they own to your name, either through a broker or by signing the transfer form on the back of an actual stock certificate. To actually claim ownership of the stock (to receive proxy and dividends) you must transact with a broker dealer or the issuing agent, which will almost certainly mean that you have to deal with AML and KYC regulations.

weego 5y ago

People talk about things like Bitcoin as a threat to sovereign currencies, and they are, as competitors, of sorts No, they're competitors for the stores of sovereign wealth that are the backing of sovereign currencies.

worik 5y ago
How so? Bitcoin is not a store of value, and sovereign currencies (I think I know what that means) are not backed by stores of wealth.
- SuoDuanDao 5y ago
  Inflationary vs deflationary instruments. Sovereign currencies are typically inflationary because central banks print them to a greater or lesser degree, National Assets like gold or land reserves are typically deflationary. Bitcoin is more the latter.
  - worik 5y ago
    Why are "National Assets" (and what s the definition of that) deflationary? Inflation/deflation is in my experience measured as money V. assets. Assets on their own are neither. Have I got that wrong?
    - SuoDuanDao 5y ago
      No, I think you're right in a technical sense. My point was that, maybe because the relevant timelines are longer for nation-states than households, their easily liquifiable assets tend to rise in value over time. A country might have gold reserves, which reduces the risk of lending to it and lets them borrow at a better interest rate. The gold reserve isn't money, the government sells bonds for money, but it can be converted to money fairly quickly. Bitcoin, similarly, is more of an asset with a fixed supply that can be quickly converted to money. Calling it 'deflationary' is probably some imprecise labeling on my part.
    - tim333 5y ago

HWR_14 5y ago

> That means that if banks (which are businesses) are not good at doing business, the government is essentially forced to treat them as dollar-equivalents by making them whol The federal government also charges the banks for that insurance. It usually is not a loss for the government.

sbierwagen 5y ago
The federal government prints dollars. It is never going to take a loss doing that.
- danielmarkbruce 5y ago
  The federal government does all kinds of things it can take a loss on, and it does in fact take losses. The federal reserve prints dollars and buys government bonds.
  - atq2119 5y ago
    It can be seen as a loss in an accounting sense, but it's not a loss in the sense it would be for you, me, or, say, Apple, because the federal government is the score keeper of the dollar. I like to think of the "losses" which arise from propping up companies (if any, as pointed out it's not necessarily a loss) as subsidies of undesirable behaviour. In other words, they're a very bad thing, just for a different reason.

spiddy 5y ago

> Stablecoins piggyback on the legal aspects of dollars, and as long as you treat them as dollar-denominated assets, you're fine. The second you treat them as dollar-equivalents, you run the risk of a change in the value of that asset being something that the government is forced into supporting. Why is that scenario worse than now? Why is bank the preferred medium to support when they default?

tim333 5y ago
It's getting worse because they are becoming more mainstream. The kind of scenario where the government might have to bail out is US Bank lends billions to something like Coinbase which holds lots of Tethers. Then Tether goes to zero, Coinbase bust, US Bank needs bailout. We're not there yet and it's best avoided.

TSiege 5y ago

I was just thinking the same thing. I was looking into [Gemini Dollar](https://www.gemini.com/dollar https://www.gemini.com/dollar) yesterday. It's a stable coin that gives the patina of being FDIC secured. Their website says, "Gemini is a U.S. company regulated by the New York Department of Financial Services. GUSD reserves are eligible for FDIC insurance up to $250,000 per user while custodied with State Street Bank and Trust.¹" Furthermore, Gemini offers 8% interest deposits of their Gemini Dollar. This sounds like a safe bet to an unassuming person. Easy 8% returns with no risk since your initial deposit is FDIC insured, so it's just like any other savings account. BUT ITS NOT. The fine print reads, "FDIC insurance applies only to the USD reserve funds. GUSD exist as ERC-20 tokens on the Ethereum blockchain; tokens are under the user’s self-custody, and are not insured through Gemini." And this is coming from a reputable backer, relative to other stable coins. Then you have Tether which is a ponzi scheme tire fire years in the making and done almost entirely in the open with no consequences. Given that stablecoins like these are used to underpin a lot of the crypto markets, if one of these were to falter I don't see how it couldn't trigger knock on effects bringing down the others and the entire crypto market with it.

aasasd 5y ago
Guess I've gotten better-than-average at reading fine print, since the word ‘eligible’ is immediately suspect to me.