7 ms·

Are you lamenting the aggression or the mere fact that the organizations are being asked to prove adequate backing?

EGreg 5y ago
Why are the authorities asking stablecoins to prove 100% reserves, also letting banks have fractional reserves closer to zero... and since 2020, actually let them have zero percent reserves: https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Zero reserves means print as much as you want, subject only to the bank's own underwriters. The banks went and minted trillions of dollars in unbacked currency. Most of our fiat money supply comes from M2 and M3 money issued by banks. Meanwhile, algorithmic stablecoins like DAI have 150% reserves, yet the government doesn't trust them as much as the banking system?
- 6gvONxR4sf7o 5y ago
  Isn't it because the stablecoins are asserting 100% reserves?
  - remarkEon 5y ago
    Can you walk me through why that's relevant? Is the implication that it's because we (or some) think the stablecoins are lying about their reserve levels, and we let banks hold fractional reserves approaching zero because they just admit this outright?
    - 6gvONxR4sf7o 5y ago
      Yeah, exactly. It's the authorities making sure that these groups are doing what they say they're doing.
      - EGreg 5y ago
        Not so sure. The authorities are in charge of determining the bank reserve requirements. The fact that they allowed zero reserves at these institutions is troubling and deserves to be discussed. This is like the Free Banking Era, except back then the States were in charge of enforcing reserve requirements. If you search online for the Fed's own explanation for these policies, they make some overconfident assertions about "ample reserves" and how their policy assumes there are now "ample" reserves, so they can just set the reserve requirements at zero. Seems to me some political doublespeak in order to provide the unprecedented level of Keynesian stimulus that was planned to be released.
    - Nursie 5y ago
      "Buy my stablecoin, it's 100% backed by actual dollars and therefore cannot crash" "OK, can we see behind the curtain?" "Absolutely not" "Can I cash them in with you to get the dollars back out?" "Hell no" That's why it's relevant. Because this is not a bank or bank-like situation, and comparisons to fratctional reserve are spurious. They're sold specifically on not being fractional.
      - EGreg 5y ago
        So now that we know, does it still apply? https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b4d9 https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b...
        Nursie 5y ago
        You mean now we know they’ve committed multi-year multi-billion dollar fraud against their users? I would have thought that would be a fantastic reason never to go anywhere near the entire ecosystem, personally. Especially as their website is still doing it (or at least using weasel-words to heavily imply it) - “All Tether tokens are pegged at 1-to-1 with a matching fiat currency (e.g., 1 USD₮ = 1 USD) and are backed 100% by Tether’s reserves.”
        tata71 5y ago
        Tether has lost dominance, the markets are moving away from them hopefully.
        distortedsignal 5y ago
        Could you go into what you mean by “Lost dominance?” Looking at CoinMarketCap, it looks like they (Tether) have the largest stablecoin market cap by 50%, and their 24h volume was an order of magnitude greater than the next closest stablecoin.
- wolverine876 5y ago
  Aren't they doing two different things? Bank reserves are (broadly speaking) against loan defaults. Also, the risk of what banks do is very well known; the risk of cryptocurrencies is the opposite.
  - EGreg 5y ago
    Loan defaults are very likely when you've lent out over a trillion dollars, with repayment over 30 years. Businesses (especially small ones) run into all kinds of things during a 30 year stretch. Also, what about loan forgiveness, what happens to that money?
    - Retric 5y ago
      Loan defaults are only a problem when they are faster than your ROI. Aka if you loan 1T dollars and get 50B in interest payments after expenses and 40B in loan defaults you didn’t lose money.
      - EGreg 5y ago
        I disagree. Let's say a bank issues some Principal amount P of money, which is then used to pay various participants in the economy. The bank now has liabilities to pay out. Then the borrower defaults. The lender may have received some percentage of P in interest, but unless that percentage is greater than 100%, the lender lost money when the borrower defaulted. They now have to make up the difference somehow, and may become insolvent.
        jboy55 5y ago
        The parent post contains a scenario where a bank has 1 T out in loans. If they make 50b (5%) in profit, they can withstand 4% of those loans going default. If profit goes up, and they can have more go default, and, get this, they charge more interest on loans more likely to go into default to cover this. They may even look at historical rates of insolvency and make sure they charge interest so that they make enough profit to cover any losses. Certainly this can go sideways when they don't understand the risk in one type of loan, like 2007-2008, but most of the time, they can figure this out.
- jcranmer 5y ago
  There's a substantial misunderstanding of what the financial terminology actually means here. In particular, you're using reserves to mean several different things and not realizing it. The "zero reserve requirement" means that banks are now required to keep $0 in their account with the Federal Reserve Bank for every $100 of deposits they take in--a literal pile of cash in their bank vault would not count a dime. That is the only thing that qualifies as reserves for that requirement, and hopefully you understand that that is by no means an accurate reflection of any lay person definition's of "reserve". Instead, modern financial regulations use capital requirements instead of reserve requirements. In essence, banks need to keep a buffer of their own cash--this isn't part of the assets/liabilities calculation--that can be raided if assets prove to be undervalued, and the amount that is needed depends on the risk of the assets. Something safe like cash requires no equity to be covered, while something like a mortgage might require about 3.5% of the par value in equity, and something like cryptocurrency 100%. Note that you can also judge banks by how much their assets exceed liabilities. A typical bank is seen as perilously close to insolvent if their assets are "only" 107% of liabilities. By this metric, I will point out that Tether's assets are about 101% of liabilities the last I checked--and that's assuming that Tether's statement of its assets are in fact accurate, which given their history of lying, is not necessarily a safe assumption.
- zionic 5y ago
  Well for one, taking on fractional reserve banking is a great way to get killed.

Why are the authorities asking stablecoins to prove 100% reserves, also letting banks have fractional reserves closer to zero... and since 2020, actually let them have zero percent reserves: https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Zero reserves means print as much as you want, subject only to the bank's own underwriters. The banks went and minted trillions of dollars in unbacked currency. Most of our fiat money supply comes from M2 and M3 money issued by banks. Meanwhile, algorithmic stablecoins like DAI have 150% reserves, yet the government doesn't trust them as much as the banking system?

6gvONxR4sf7o 5y ago
Isn't it because the stablecoins are asserting 100% reserves?
- remarkEon 5y ago
  Can you walk me through why that's relevant? Is the implication that it's because we (or some) think the stablecoins are lying about their reserve levels, and we let banks hold fractional reserves approaching zero because they just admit this outright?
  - 6gvONxR4sf7o 5y ago
    Yeah, exactly. It's the authorities making sure that these groups are doing what they say they're doing.
    - EGreg 5y ago
      Not so sure. The authorities are in charge of determining the bank reserve requirements. The fact that they allowed zero reserves at these institutions is troubling and deserves to be discussed. This is like the Free Banking Era, except back then the States were in charge of enforcing reserve requirements. If you search online for the Fed's own explanation for these policies, they make some overconfident assertions about "ample reserves" and how their policy assumes there are now "ample" reserves, so they can just set the reserve requirements at zero. Seems to me some political doublespeak in order to provide the unprecedented level of Keynesian stimulus that was planned to be released.
  - Nursie 5y ago
    "Buy my stablecoin, it's 100% backed by actual dollars and therefore cannot crash" "OK, can we see behind the curtain?" "Absolutely not" "Can I cash them in with you to get the dollars back out?" "Hell no" That's why it's relevant. Because this is not a bank or bank-like situation, and comparisons to fratctional reserve are spurious. They're sold specifically on not being fractional.
    - EGreg 5y ago
      So now that we know, does it still apply? https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b4d9 https://www.ft.com/content/529eb4e6-796a-4e81-8064-5967bbe3b...
      - Nursie 5y ago
        You mean now we know they’ve committed multi-year multi-billion dollar fraud against their users? I would have thought that would be a fantastic reason never to go anywhere near the entire ecosystem, personally. Especially as their website is still doing it (or at least using weasel-words to heavily imply it) - “All Tether tokens are pegged at 1-to-1 with a matching fiat currency (e.g., 1 USD₮ = 1 USD) and are backed 100% by Tether’s reserves.”
        tata71 5y ago
        Tether has lost dominance, the markets are moving away from them hopefully.
        distortedsignal 5y ago
        Could you go into what you mean by “Lost dominance?” Looking at CoinMarketCap, it looks like they (Tether) have the largest stablecoin market cap by 50%, and their 24h volume was an order of magnitude greater than the next closest stablecoin.
wolverine876 5y ago
Aren't they doing two different things? Bank reserves are (broadly speaking) against loan defaults. Also, the risk of what banks do is very well known; the risk of cryptocurrencies is the opposite.
- EGreg 5y ago
  Loan defaults are very likely when you've lent out over a trillion dollars, with repayment over 30 years. Businesses (especially small ones) run into all kinds of things during a 30 year stretch. Also, what about loan forgiveness, what happens to that money?
  - Retric 5y ago
    Loan defaults are only a problem when they are faster than your ROI. Aka if you loan 1T dollars and get 50B in interest payments after expenses and 40B in loan defaults you didn’t lose money.
    - EGreg 5y ago
      I disagree. Let's say a bank issues some Principal amount P of money, which is then used to pay various participants in the economy. The bank now has liabilities to pay out. Then the borrower defaults. The lender may have received some percentage of P in interest, but unless that percentage is greater than 100%, the lender lost money when the borrower defaulted. They now have to make up the difference somehow, and may become insolvent.
      - jboy55 5y ago
        The parent post contains a scenario where a bank has 1 T out in loans. If they make 50b (5%) in profit, they can withstand 4% of those loans going default. If profit goes up, and they can have more go default, and, get this, they charge more interest on loans more likely to go into default to cover this. They may even look at historical rates of insolvency and make sure they charge interest so that they make enough profit to cover any losses. Certainly this can go sideways when they don't understand the risk in one type of loan, like 2007-2008, but most of the time, they can figure this out.
jcranmer 5y ago
There's a substantial misunderstanding of what the financial terminology actually means here. In particular, you're using reserves to mean several different things and not realizing it. The "zero reserve requirement" means that banks are now required to keep $0 in their account with the Federal Reserve Bank for every $100 of deposits they take in--a literal pile of cash in their bank vault would not count a dime. That is the only thing that qualifies as reserves for that requirement, and hopefully you understand that that is by no means an accurate reflection of any lay person definition's of "reserve". Instead, modern financial regulations use capital requirements instead of reserve requirements. In essence, banks need to keep a buffer of their own cash--this isn't part of the assets/liabilities calculation--that can be raided if assets prove to be undervalued, and the amount that is needed depends on the risk of the assets. Something safe like cash requires no equity to be covered, while something like a mortgage might require about 3.5% of the par value in equity, and something like cryptocurrency 100%. Note that you can also judge banks by how much their assets exceed liabilities. A typical bank is seen as perilously close to insolvent if their assets are "only" 107% of liabilities. By this metric, I will point out that Tether's assets are about 101% of liabilities the last I checked--and that's assuming that Tether's statement of its assets are in fact accurate, which given their history of lying, is not necessarily a safe assumption.
zionic 5y ago
Well for one, taking on fractional reserve banking is a great way to get killed.