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Stable coins are meant to be backed by dollars, but the people running them haven't done that, they spent the reserves hoping no one would notice. Looks like s

Stable coins are meant to be backed by dollars, but the people running them haven't done that, they spent the reserves hoping no one would notice. Looks like some people have.

ohiovr 4y ago
That is basically how every fractional reserve banking system ends.
- rchaud 4y ago
  An unregulated fractional reserve banking system with no minimum reserve requirements, and with no lender of last resort.
- pjc50 4y ago
  .. which is why in the real world central banks are there to act as lenders of last resort. If there's a bank run, print money and lend it to the banks until the run stops. This is separate from the issues facing stablecoins. I'm reminded of the British government's failed attempt to maintain a "stablepound" against the "stablemark", in the proto-stablecoin mechanism known as the ERM. https://en.wikipedia.org/wiki/Black_Wednesday https://en.wikipedia.org/wiki/Black_Wednesday Many of the same features are there. Spend the reserves! Increase the interest rates! Ultimately they had to de-peg. The person on the other side of that trade? George Soros. Yes, really.
Nursie 4y ago
In this case it seems to have been much more complex than that. There was UST, which was supposed to be stable, and a linked coin Luna which was a form of balancing token, with smart contracts allowing conversion between the two, with the Luna exchange rate supplied by an oracle. If UST starts to lose value, buy pressure is created because someone could buy 100 of them at (say) $39 and immediately convert to $100 of Luna. If it starts to rise, say to $1.10, you use Luna to convert to UST at a discount and then sell it to turn a profit. There were multiple other mechanisms to this, including one that involved staking your UST for interest and getting Anchor tokens, so that others could take loans. Anchor would give a 20% interest rate(!) and then there was something about loan defaults and buying collateral at a discount and ... Massively complex, and one of those things that works fine, until one day it doesn't.
- hnbad 4y ago
  You say complex, I say contrived. They managed to maintain the appearance of stability for a while but it sounds like that was built on a Lovecraftian nightmare of convoluted interconnected systems that only ever seemed trustworthy thanks to the power of buzzwords.
  - Nursie 4y ago
    > You say complex, I say contrived And I don't believe you would be wrong! It looks almost purposely designed to blind the casual investigator with complexity and buzzwords, while luring them in with the promise of m4d g41nz.
0x64 4y ago
Stable coins don't have to be backed by dollars, e.g. Dai and MIM are over-collaterized with cryptos. Dai survived the fall from ~$2k Ether to ~$50 Ether, and never lost its peg.
- quickthrower2 4y ago
  If you are collateralized to survive a 97.5% loss in collateral value, it means there has to be a severe limit on the amount of USD circulated by the stablecoin. It cannot scale.
  - delaaxe 4y ago
    Except if most of your collateral is USDC and USDT which are allegedly backed by real dollars
    - quickthrower2 4y ago
      That would be fractional reserve cubed … or something!
  - ryanobjc 4y ago
    That's not what happened.
    - mtmail 4y ago
      Can you elaborate?
- m00dy 4y ago
  HN is not the place to discuss innovations in crypto space.
  - aaaaaaaaata 4y ago
    Well, instead of shouting you down, I'll just say this is contested, both by myself and many others. The community at large has awful factions, but a portion of this tech will be normalized sooner than we hope.
Cthulhu_ 4y ago
I mean if you want a stable coin... just use dollars? I get that you want to make use of some of the benefits of crypto, but the downside is that there's scams and instability everywhere, and "stable" coin is just a sales pitch, not a guarantee. I mean the USD is not stable either by definition, but there's more checks and balances there and your $1000 won't halve in value overnight except in extreme situations like the world shutting you off of the international financial system for invading a neighbouring country.

Stable coins are meant to be backed by dollars, but the people running them haven't done that, they spent the reserves hoping no one would notice. Looks like some people have.

ohiovr 4y ago

That is basically how every fractional reserve banking system ends.

rchaud 4y ago
An unregulated fractional reserve banking system with no minimum reserve requirements, and with no lender of last resort.
pjc50 4y ago
.. which is why in the real world central banks are there to act as lenders of last resort. If there's a bank run, print money and lend it to the banks until the run stops. This is separate from the issues facing stablecoins. I'm reminded of the British government's failed attempt to maintain a "stablepound" against the "stablemark", in the proto-stablecoin mechanism known as the ERM. https://en.wikipedia.org/wiki/Black_Wednesday https://en.wikipedia.org/wiki/Black_Wednesday Many of the same features are there. Spend the reserves! Increase the interest rates! Ultimately they had to de-peg. The person on the other side of that trade? George Soros. Yes, really.

Nursie 4y ago

In this case it seems to have been much more complex than that. There was UST, which was supposed to be stable, and a linked coin Luna which was a form of balancing token, with smart contracts allowing conversion between the two, with the Luna exchange rate supplied by an oracle. If UST starts to lose value, buy pressure is created because someone could buy 100 of them at (say) $39 and immediately convert to $100 of Luna. If it starts to rise, say to $1.10, you use Luna to convert to UST at a discount and then sell it to turn a profit. There were multiple other mechanisms to this, including one that involved staking your UST for interest and getting Anchor tokens, so that others could take loans. Anchor would give a 20% interest rate(!) and then there was something about loan defaults and buying collateral at a discount and ... Massively complex, and one of those things that works fine, until one day it doesn't.

hnbad 4y ago
You say complex, I say contrived. They managed to maintain the appearance of stability for a while but it sounds like that was built on a Lovecraftian nightmare of convoluted interconnected systems that only ever seemed trustworthy thanks to the power of buzzwords.
- Nursie 4y ago
  > You say complex, I say contrived And I don't believe you would be wrong! It looks almost purposely designed to blind the casual investigator with complexity and buzzwords, while luring them in with the promise of m4d g41nz.

0x64 4y ago

Stable coins don't have to be backed by dollars, e.g. Dai and MIM are over-collaterized with cryptos. Dai survived the fall from ~$2k Ether to ~$50 Ether, and never lost its peg.

quickthrower2 4y ago
If you are collateralized to survive a 97.5% loss in collateral value, it means there has to be a severe limit on the amount of USD circulated by the stablecoin. It cannot scale.
- delaaxe 4y ago
  Except if most of your collateral is USDC and USDT which are allegedly backed by real dollars
  - quickthrower2 4y ago
    That would be fractional reserve cubed … or something!
- ryanobjc 4y ago
  That's not what happened.
  - mtmail 4y ago
    Can you elaborate?
m00dy 4y ago
HN is not the place to discuss innovations in crypto space.
- aaaaaaaaata 4y ago
  Well, instead of shouting you down, I'll just say this is contested, both by myself and many others. The community at large has awful factions, but a portion of this tech will be normalized sooner than we hope.

Cthulhu_ 4y ago

I mean if you want a stable coin... just use dollars? I get that you want to make use of some of the benefits of crypto, but the downside is that there's scams and instability everywhere, and "stable" coin is just a sales pitch, not a guarantee. I mean the USD is not stable either by definition, but there's more checks and balances there and your $1000 won't halve in value overnight except in extreme situations like the world shutting you off of the international financial system for invading a neighbouring country.