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I'm confused why the comments here aren't more critical of stablecoins. A stablecoin is just a bank deposit without an interest rate, and with very little in th

by ouid 5y ago

I'm confused why the comments here aren't more critical of stablecoins. A stablecoin is just a bank deposit without an interest rate, and with very little in the way of regulation over what the issuer does with the cash that has been deposited. Without some other mechanism, they wouldn't exist except as a novelty. The question must become "what is the other mechanism?". In the case of Tether, which has the largest market cap of any stablecoin, as far as I know, the scam is this. If I want to have liquidity on Bitfinex, I need to go buy tethers. If I try to make a transaction for bitcoins with dollars on the exchange, it could take days to process. There's no particular reason for this, You're just trading shares of a large wallet. So I must first go buy some tether from bitfinex, but wait, USD to Tether liquidity is also artifically capped. If I try to buy tether for dollars, it can also take days. It follows that the only way to obtain liquidity on one of these exchanges is to buy and hold stablecoins. This is the premise upon which the exchanges that print these currencies can then turn around and lend the dollars used to buy them. If you discovered, suddenly, that a casino had 78 billion dollars in chips just floating around, you would rightly wonder what the hell was going on, although the explanation would likely be different. Tether is not a cryptocurrency, it's a casino chip. An escrow account that the bank is illegally investing in risky securities, entirely for the profit of its executives, investment in which is entirely funded by manipulating access to the wider crypto market.

csa 5y ago
> The question must become "what is the other mechanism?". For one, in theory, one useful aspect of a stable coin is to allow a user to get in and out of numerous crypto currencies while minimizing fees and delays. Any engagement with the fiat banking system will typically cost time and/or money basically due to the potential for fraud and existing anti-fraud measures both for the banks as well as the exchanges. As such, stable coins in theory should be a reasonable proxy for fiat for folks who trade crypto aggressively (e.g., day trading). In practice, you get the train wreck that is Tether and Bitfinex. I realize that Tether is huge, but it’s not the best poster child for what a stable coin should be or can be. I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward. A second mechanism, and I think this is a big one, is that stable coins managed directly or indirectly by nation states (specifically US and China and maybe EU) will be a big deal in developing countries for both savings as well as transactions. China is already doing this on a small scale. Without getting into the nitty gritty, being a winner in this area will provide the issuer of the stable coin a tremendous amount of influence on the world economy.
- hcks 5y ago
  > I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward. I know little about finance but I don't understand why it is smarter to back a stable with cash rather than with bonds and loans for instance.
  - notch656a 5y ago
    Because the perfect hedge for a debt is to own precisely your liability for that debt. Dollar stablecoins aren't redeemable as bonds, they're redeemable (sometimes, not for tether) as dollars. Using bonds/loans introduces risk and makes the books look 1:1 (mature bonds may pay the full liabilities -- assuming the issuer doesn't default), but actually it turns out to be unregulated fractional reserve banking as people buy these bonds at a discount. I'm not impugning fractional reserve banking per se here, just the idea that a stable coin backed by bonds is the same as a stable coin backed by the asset it represents.
  - csa 5y ago
    > I know little about finance but I don't understand why it is smarter to back a stable with cash rather than with bonds and loans for instance. It’s probably not a bad idea if done in good faith. I probably should have said “sketchy bonds/loans”. What bitfinex has been doing is extremely sketchy and (imho) probably won’t survive a run (if a run ever happens).
kyruzic 5y ago
The vast majority of bank accounts offer abysmal interest rates. And holding a stable coin is nothing like a bank deposit its like holding cash in your wallet, you and only you have control over the coin. And there are opportunities to "stake" the coin and earn an interest rate. The primary reason for delays between buying crypto and actually receiving it is your bank. Not the exchange. Your bank is fucking around with your money and not sending it to the exchange immediately and even after they send it they have the ability to reverse the transaction, so the exchange needs the guarantee the money will not be taken from them. The rest of your comment is just nonsense. Tether is a cryptocurrency I don't even understand how you could argue its not. You should look into all the laws traditional banks break using your money too.
- Raidion 5y ago
  You have some valid critiques about the post, but the big point that you didn't answer in this is the idea that tether is more or less "unbacked" and with significantly less regulation that doesn't have even the (often critiqued) limits set forward in Basel II/III. USD is backed by the full weight of the US government, Tether is backed by a bank account with unknown things in it. The fact that the market isn't totally efficient doing USD/BTC transactions directly and the fact that Tether is clearly far more risky than USD kinda indicates something is up. Who knows, they could be playing it safe and be well capitalized, but if they're not, it becomes a very similar situation to when Soros made a mint "breaking" the Pound.
  - kyruzic 5y ago
    Yes I am aware tether is not backed by nearly as much liquid capital as it claims. Neither are any traditional banks. Any flaws with tether are present in the traditional banking system. Tether at least solves a few of its flaws however. I am by no means a fan of tether or any other stable coins, but they are just as legitimate as our current banking system.
    - elisbce 5y ago
      Geez, just because the current banking system also has risks in their investments doesn't mean they are the same as Tether. The amount of risks we are talking about is completely different. The US banks are backed by insurances, which are backed by the US government and Fed. This Tether company is registered in a tax haven and this guy supposedly lives somewhere in Hongkong. Most of their reserve are in offshore shady private banks since major banks won't accept cryptocurrency related transactions. There is a whole history how this guy found some banker from his hometown to start off the Tether reserve things. This Tether guy also was involved in fraud before. They could literally just disappear tomorrow with all the money and you can't even find him. So before putting out such claims like all the banks are the same as Tether, do your research first and stop blanket generalization.
overtonwhy 5y ago
"As found in the order, Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018. The order also finds that, instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products. The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”" https://www.cftc.gov/PressRoom/PressReleases/8450-21 https://www.cftc.gov/PressRoom/PressReleases/8450-21
mNovak 5y ago
To be clear, Tether is highly problematic, but there are other stablecoins too. While not "regulation" concerning deposits, there are so-called algoirthmic stablecoins, which are fully collateralized on-chain, meaning the coin issuer can't just go buying junk bonds or whatever.
- notch656a 5y ago
  Can you recommend any stable coins that aren't collateralized by either other stable coins or floating un-backed crypto like bitcoin et al? I wish El Salvador or some entity in some favorable jurisdiction would issue a commodities backed stable coin actually redeemable, fully backed, and audited.
Animats 5y ago
How hard is it to trade USDT (Tether) for USDC (supposedly fully-backed)? USDC can (supposedly) be cashed in for US dollars.
- bitxbitxbitcoin 5y ago
  Not hard. In fact, USDC recently flipped USDT in volume.
- ouid 5y ago
  It is in the interest of the scheme that it (at least seem to be) be very easy to cash out. If it is difficult to cash out, then holding tether results in a loss of liquidity.

by ouid 5y ago

csa 5y ago

> The question must become "what is the other mechanism?". For one, in theory, one useful aspect of a stable coin is to allow a user to get in and out of numerous crypto currencies while minimizing fees and delays. Any engagement with the fiat banking system will typically cost time and/or money basically due to the potential for fraud and existing anti-fraud measures both for the banks as well as the exchanges. As such, stable coins in theory should be a reasonable proxy for fiat for folks who trade crypto aggressively (e.g., day trading). In practice, you get the train wreck that is Tether and Bitfinex. I realize that Tether is huge, but it’s not the best poster child for what a stable coin should be or can be. I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward. A second mechanism, and I think this is a big one, is that stable coins managed directly or indirectly by nation states (specifically US and China and maybe EU) will be a big deal in developing countries for both savings as well as transactions. China is already doing this on a small scale. Without getting into the nitty gritty, being a winner in this area will provide the issuer of the stable coin a tremendous amount of influence on the world economy.

hcks 5y ago
> I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward. I know little about finance but I don't understand why it is smarter to back a stable with cash rather than with bonds and loans for instance.
- notch656a 5y ago
  Because the perfect hedge for a debt is to own precisely your liability for that debt. Dollar stablecoins aren't redeemable as bonds, they're redeemable (sometimes, not for tether) as dollars. Using bonds/loans introduces risk and makes the books look 1:1 (mature bonds may pay the full liabilities -- assuming the issuer doesn't default), but actually it turns out to be unregulated fractional reserve banking as people buy these bonds at a discount. I'm not impugning fractional reserve banking per se here, just the idea that a stable coin backed by bonds is the same as a stable coin backed by the asset it represents.
- csa 5y ago
  > I know little about finance but I don't understand why it is smarter to back a stable with cash rather than with bonds and loans for instance. It’s probably not a bad idea if done in good faith. I probably should have said “sketchy bonds/loans”. What bitfinex has been doing is extremely sketchy and (imho) probably won’t survive a run (if a run ever happens).

kyruzic 5y ago

The vast majority of bank accounts offer abysmal interest rates. And holding a stable coin is nothing like a bank deposit its like holding cash in your wallet, you and only you have control over the coin. And there are opportunities to "stake" the coin and earn an interest rate. The primary reason for delays between buying crypto and actually receiving it is your bank. Not the exchange. Your bank is fucking around with your money and not sending it to the exchange immediately and even after they send it they have the ability to reverse the transaction, so the exchange needs the guarantee the money will not be taken from them. The rest of your comment is just nonsense. Tether is a cryptocurrency I don't even understand how you could argue its not. You should look into all the laws traditional banks break using your money too.

Raidion 5y ago
You have some valid critiques about the post, but the big point that you didn't answer in this is the idea that tether is more or less "unbacked" and with significantly less regulation that doesn't have even the (often critiqued) limits set forward in Basel II/III. USD is backed by the full weight of the US government, Tether is backed by a bank account with unknown things in it. The fact that the market isn't totally efficient doing USD/BTC transactions directly and the fact that Tether is clearly far more risky than USD kinda indicates something is up. Who knows, they could be playing it safe and be well capitalized, but if they're not, it becomes a very similar situation to when Soros made a mint "breaking" the Pound.
- kyruzic 5y ago
  Yes I am aware tether is not backed by nearly as much liquid capital as it claims. Neither are any traditional banks. Any flaws with tether are present in the traditional banking system. Tether at least solves a few of its flaws however. I am by no means a fan of tether or any other stable coins, but they are just as legitimate as our current banking system.
  - elisbce 5y ago
    Geez, just because the current banking system also has risks in their investments doesn't mean they are the same as Tether. The amount of risks we are talking about is completely different. The US banks are backed by insurances, which are backed by the US government and Fed. This Tether company is registered in a tax haven and this guy supposedly lives somewhere in Hongkong. Most of their reserve are in offshore shady private banks since major banks won't accept cryptocurrency related transactions. There is a whole history how this guy found some banker from his hometown to start off the Tether reserve things. This Tether guy also was involved in fraud before. They could literally just disappear tomorrow with all the money and you can't even find him. So before putting out such claims like all the banks are the same as Tether, do your research first and stop blanket generalization.

overtonwhy 5y ago

"As found in the order, Tether held sufficient fiat reserves in its accounts to back USDT tether tokens in circulation for only 27.6% of the days in a 26-month sample time period from 2016 through 2018. The order also finds that, instead of holding all USDT token reserves in U.S. dollars as represented, Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; comingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products. The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”" https://www.cftc.gov/PressRoom/PressReleases/8450-21 https://www.cftc.gov/PressRoom/PressReleases/8450-21

mNovak 5y ago

To be clear, Tether is highly problematic, but there are other stablecoins too. While not "regulation" concerning deposits, there are so-called algoirthmic stablecoins, which are fully collateralized on-chain, meaning the coin issuer can't just go buying junk bonds or whatever.

notch656a 5y ago
Can you recommend any stable coins that aren't collateralized by either other stable coins or floating un-backed crypto like bitcoin et al? I wish El Salvador or some entity in some favorable jurisdiction would issue a commodities backed stable coin actually redeemable, fully backed, and audited.

Animats 5y ago

How hard is it to trade USDT (Tether) for USDC (supposedly fully-backed)? USDC can (supposedly) be cashed in for US dollars.

bitxbitxbitcoin 5y ago
Not hard. In fact, USDC recently flipped USDT in volume.
ouid 5y ago
It is in the interest of the scheme that it (at least seem to be) be very easy to cash out. If it is difficult to cash out, then holding tether results in a loss of liquidity.