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> 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/loa
by 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).