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I really don't understand why anyone wants algorithmic stable coins. It really just seems like the worst of both worlds. If you want a crypto asset that correla

I really don't understand why anyone wants algorithmic stable coins. It really just seems like the worst of both worlds. If you want a crypto asset that correlates with USD, why not buy something like USDC that's actually... you know, backed by USD?

gruez 4y ago
Because it being backed by actual USD also means it's subject to the reach of the US federal government. That means your funds can potentially be arbitrarily frozen/seized.
- worik 4y ago
  Not the cash in the shoebox under my bed
  - gruez 4y ago
    "cash in the shoebox under my bed" can't be sent over the internet.
    - worik 4y ago
      That is a good thing
      - therealcamino 4y ago
        For just a second this exchange made me think what an insane world we'd live in if you'd always been able to spend cash in dollars without the physical bills, but could use the serial numbers on them to spend them. Imagine all the scams like the Target gift card phone calls where they try to get you to send photos of the bills.
- 1270018080 4y ago
  It all comes back to the idea that crypto is only a novel solution for scams and illicit markets.
- jjtheblunt 4y ago
  Is that not the case for blockchains because the wallet ids do not divulge identities?
  - pcthrowaway 4y ago
    Two points: - Government agencies can ascertain the identities of virtually all accounts with Chainalysis, following the money to the fiat entry/exit points. - Even with a theoretical anonymous account, with centralized stablecoins like USDC or USDT, the balance held by that account can be frozen because the issuers of those tokens have crafted their token contracts such that they maintain the ability to mark certain addresses as incapable of transfer
    - scyclow 4y ago
      Took 17 responses, but I think your second point answers my question. Thank you.
  - gruez 4y ago
    >wallet ids do not divulge identities Theoretically yes, but in practice no. A quick search turns up https://www.theblockcrypto.com/post/129133/tether-freezes-over-1-million-usdt-single-address https://www.theblockcrypto.com/post/129133/tether-freezes-ov... for instance
- Johnny555 4y ago
  If your biggest reason to use risky crypto is because the US Government might seize your funds, that's probably a reason to not do whatever you're doing (if you live in the USA) since the US Goverment can probably just seize you for the same reason.
  - gruez 4y ago
    1. not everyone lives in the US 2. "seize you" is much harder to do (ie. court conviction) than freezing a bank/stablecoin account
    - Johnny555 4y ago
      Then don't keep your assets in banks linked to the USA so they can't just seize your assets on a whim, they actually have to prove that the money should be seized. What activities can a non-american do that would result in seizure of their funds, but wouldn't also subject them to arrest? (other than accruing IRS debt)
      - gruez 4y ago
        > Then don't keep your assets in banks linked to the USA so they can't just seize your assets on a whim, they actually have to prove that the money should be seized. If your net worth is high enough to afford such an arrangement, by all means do that. > What activities can a non-american do that would result in seizure of their funds, but wouldn't also subject them to arrest? (other than accruing IRS debt) activities that generate enough suspicion for the authorities to target you (ie. civil forfeiture) but for which the authorities don't have enough evidence to convict you.
        Johnny555 4y ago
        If your net worth is high enough to afford such an arrangement, by all means do that. How much net worth do you need to find a bank that's doesn't have a branch or other offices in the USA which would require them to obey USA seizure requests? Can't you just look for a small local bank that's not part of an iternational bank with offices in the USA? activities that generate enough suspicion for the authorities to target you (ie. civil forfeiture) but for which the authorities don't have enough evidence to convict you. I meant specifically, not general hand waving "anything that makes authorities suspicious". I just want to know what the legitimate use case is for using crypocurrency to shield your funds from the USA that couldn't also be done at a traditional bank.
csomar 4y ago
1. USDC is not backed by USD. 2. You want "a stable value" but don't really want to hold USD (because to hold USD, you need access to the US capital markets and banking system).
- nscalf 4y ago
  USDC is backed by cash and cash equivalents (treasury bonds, for instance). They've gone through multiple audits, and are in the process of going public.
  - csomar 4y ago
    The cash equivalents is highly rated securities and it's unclear what they define as highly rated. They don't disclose the securities they are hedging with, plus they mention that they are actively trading with this money (so there is some additional risk even if they are trading solely treasury bonds).
323 4y ago
In theory an algorithmic stable coin can be moved around more quickly, since you can move the backing BTC/ETH/... more quickly than the backing USD. In practice they are extremely fragile as seen here.
betwixthewires 4y ago
Basically what you're doing is you're shuffling risk using an algorithm. If USD is less volatile than something else, you can park money in an asset that correlates close to 100% with it without actually having to worry about banks and KYC and all of that. Of course, if you're going to use it, you'd better understand the system behind it. There's a DAO called MakerDAO that maintains a pegged stablecoin called DAI that is pegged to USD using actual crypto reserves. It works very, very well. Of course, given time, all pegs break. But it's miles ahead of this Terra system that was an obvious sham from the get go.
- ShamelessC 4y ago
  MakerDAO seems sketchy. A bunch of participants have filed a class action lawsuit. https://www.coindesk.com/policy/2020/09/29/28m-makerdao-black-thursday-lawsuit-moves-to-arbitration/ https://www.coindesk.com/policy/2020/09/29/28m-makerdao-blac... At any rate, I don't think most people really have the skills to discern what is and is not a grift in the cryptocurrency space. Best to assume they all are, unless you can basically read and grok all the code and fine print.
  - betwixthewires 4y ago
    That's exactly right. Always assume something is a scam, because you'll be right 99% of the time. MakerDAO is pretty self explanatory if you look at the code and the spec of how the protocol works. You overcollateralize based on the ratio set by the DAO, you get dollar pegged coins (which then, are undervalued, providing the stability) and the system keeps the amount of stablecoins in circulation always less than the value of collateral. It can break, it will break eventually, as all pegs do, but it is wildly more stable than these other obviously flawed schemes. Skimming through that article, it looks like a frivolous attempt at a settlement. There's no misrepresentation whatsoever: open a CDP, if the value of collateral drops below the threshold, your CDP gets liquidated unless you can top it up. I'm not surprised the judge allowed it to go to arbitration. It also looks like a plaintiff tried to get a class action going but not a lot of people joined in.
    - 4y ago
throwawaygh 4y ago
It's not 2008 or even 2013. You can get crypto at a coin counting kiosk in any grocery store in middle America. The psychology driving crypto for the last half decade or so is the same sort of psychology that drives penny stocks and scratch-offs. The only people who don't understand this yet are sitting in SV/NYC/Miami and are totally out of touch. Stablecoins were sold as "the stability of a savings account with the returns of dogecoin".
Brycee 4y ago
Multi-coin stablecoins like UST are usually structured to make money for a third party. For some, additional usage of the primary coin drives the appreciation of the secondary coin. If they are built to incentivize adoption, you can guarantee nobody will pay too close attention to whether or not the match checks out. We desperately need to support collateralized stablecoins like USDC through clarifying regulation that standardizes reserve requirements and transparency. This would likely drive use away from algo coins and bring stability to so called stablecoins.
CaptainZapp 4y ago
> why not buy something like USDC that's actually... you know, backed by USD? why not buy something like USDC that's allegedly you know, backed by USD? Here, corrected it for you.

gruez 4y ago

Because it being backed by actual USD also means it's subject to the reach of the US federal government. That means your funds can potentially be arbitrarily frozen/seized.

worik 4y ago
Not the cash in the shoebox under my bed
- gruez 4y ago
  "cash in the shoebox under my bed" can't be sent over the internet.
  - worik 4y ago
    That is a good thing
    - therealcamino 4y ago
      For just a second this exchange made me think what an insane world we'd live in if you'd always been able to spend cash in dollars without the physical bills, but could use the serial numbers on them to spend them. Imagine all the scams like the Target gift card phone calls where they try to get you to send photos of the bills.
1270018080 4y ago
It all comes back to the idea that crypto is only a novel solution for scams and illicit markets.
jjtheblunt 4y ago
Is that not the case for blockchains because the wallet ids do not divulge identities?
- pcthrowaway 4y ago
  Two points: - Government agencies can ascertain the identities of virtually all accounts with Chainalysis, following the money to the fiat entry/exit points. - Even with a theoretical anonymous account, with centralized stablecoins like USDC or USDT, the balance held by that account can be frozen because the issuers of those tokens have crafted their token contracts such that they maintain the ability to mark certain addresses as incapable of transfer
  - scyclow 4y ago
    Took 17 responses, but I think your second point answers my question. Thank you.
- gruez 4y ago
  >wallet ids do not divulge identities Theoretically yes, but in practice no. A quick search turns up https://www.theblockcrypto.com/post/129133/tether-freezes-over-1-million-usdt-single-address https://www.theblockcrypto.com/post/129133/tether-freezes-ov... for instance
Johnny555 4y ago
If your biggest reason to use risky crypto is because the US Government might seize your funds, that's probably a reason to not do whatever you're doing (if you live in the USA) since the US Goverment can probably just seize you for the same reason.
- gruez 4y ago
  1. not everyone lives in the US 2. "seize you" is much harder to do (ie. court conviction) than freezing a bank/stablecoin account
  - Johnny555 4y ago
    Then don't keep your assets in banks linked to the USA so they can't just seize your assets on a whim, they actually have to prove that the money should be seized. What activities can a non-american do that would result in seizure of their funds, but wouldn't also subject them to arrest? (other than accruing IRS debt)
    - gruez 4y ago
      > Then don't keep your assets in banks linked to the USA so they can't just seize your assets on a whim, they actually have to prove that the money should be seized. If your net worth is high enough to afford such an arrangement, by all means do that. > What activities can a non-american do that would result in seizure of their funds, but wouldn't also subject them to arrest? (other than accruing IRS debt) activities that generate enough suspicion for the authorities to target you (ie. civil forfeiture) but for which the authorities don't have enough evidence to convict you.
      - Johnny555 4y ago
        If your net worth is high enough to afford such an arrangement, by all means do that. How much net worth do you need to find a bank that's doesn't have a branch or other offices in the USA which would require them to obey USA seizure requests? Can't you just look for a small local bank that's not part of an iternational bank with offices in the USA? activities that generate enough suspicion for the authorities to target you (ie. civil forfeiture) but for which the authorities don't have enough evidence to convict you. I meant specifically, not general hand waving "anything that makes authorities suspicious". I just want to know what the legitimate use case is for using crypocurrency to shield your funds from the USA that couldn't also be done at a traditional bank.

csomar 4y ago

1. USDC is not backed by USD. 2. You want "a stable value" but don't really want to hold USD (because to hold USD, you need access to the US capital markets and banking system).

nscalf 4y ago
USDC is backed by cash and cash equivalents (treasury bonds, for instance). They've gone through multiple audits, and are in the process of going public.
- csomar 4y ago
  The cash equivalents is highly rated securities and it's unclear what they define as highly rated. They don't disclose the securities they are hedging with, plus they mention that they are actively trading with this money (so there is some additional risk even if they are trading solely treasury bonds).

323 4y ago

In theory an algorithmic stable coin can be moved around more quickly, since you can move the backing BTC/ETH/... more quickly than the backing USD. In practice they are extremely fragile as seen here.

betwixthewires 4y ago

Basically what you're doing is you're shuffling risk using an algorithm. If USD is less volatile than something else, you can park money in an asset that correlates close to 100% with it without actually having to worry about banks and KYC and all of that. Of course, if you're going to use it, you'd better understand the system behind it. There's a DAO called MakerDAO that maintains a pegged stablecoin called DAI that is pegged to USD using actual crypto reserves. It works very, very well. Of course, given time, all pegs break. But it's miles ahead of this Terra system that was an obvious sham from the get go.

ShamelessC 4y ago
MakerDAO seems sketchy. A bunch of participants have filed a class action lawsuit. https://www.coindesk.com/policy/2020/09/29/28m-makerdao-black-thursday-lawsuit-moves-to-arbitration/ https://www.coindesk.com/policy/2020/09/29/28m-makerdao-blac... At any rate, I don't think most people really have the skills to discern what is and is not a grift in the cryptocurrency space. Best to assume they all are, unless you can basically read and grok all the code and fine print.
- betwixthewires 4y ago
  That's exactly right. Always assume something is a scam, because you'll be right 99% of the time. MakerDAO is pretty self explanatory if you look at the code and the spec of how the protocol works. You overcollateralize based on the ratio set by the DAO, you get dollar pegged coins (which then, are undervalued, providing the stability) and the system keeps the amount of stablecoins in circulation always less than the value of collateral. It can break, it will break eventually, as all pegs do, but it is wildly more stable than these other obviously flawed schemes. Skimming through that article, it looks like a frivolous attempt at a settlement. There's no misrepresentation whatsoever: open a CDP, if the value of collateral drops below the threshold, your CDP gets liquidated unless you can top it up. I'm not surprised the judge allowed it to go to arbitration. It also looks like a plaintiff tried to get a class action going but not a lot of people joined in.
  - 4y ago

throwawaygh 4y ago

It's not 2008 or even 2013. You can get crypto at a coin counting kiosk in any grocery store in middle America. The psychology driving crypto for the last half decade or so is the same sort of psychology that drives penny stocks and scratch-offs. The only people who don't understand this yet are sitting in SV/NYC/Miami and are totally out of touch. Stablecoins were sold as "the stability of a savings account with the returns of dogecoin".

Brycee 4y ago

Multi-coin stablecoins like UST are usually structured to make money for a third party. For some, additional usage of the primary coin drives the appreciation of the secondary coin. If they are built to incentivize adoption, you can guarantee nobody will pay too close attention to whether or not the match checks out. We desperately need to support collateralized stablecoins like USDC through clarifying regulation that standardizes reserve requirements and transparency. This would likely drive use away from algo coins and bring stability to so called stablecoins.

CaptainZapp 4y ago

> why not buy something like USDC that's actually... you know, backed by USD? why not buy something like USDC that's allegedly you know, backed by USD? Here, corrected it for you.