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> 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 numer
by 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 agoBecause 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).