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It is conceptually very simple to maintain a currency peg: just store 100% of reserves in the currency that you want to maintain the peg to, and promise to hono
by Slartie 4y ago
It is conceptually very simple to maintain a currency peg: just store 100% of reserves in the currency that you want to maintain the peg to, and promise to honor redemptions from those reserves at any time.
What you describe as "difficult" is what Terra/Luna tried to achieve: maintain a peg without keeping 100% of your reserves in the pegged currency. That is what nation states also do, which is why even they can easily fail. But that is not what USDT or USDC proclaim to do. They proclaim to implement the "simple" variant. If that is actually true (for which there are some doubts in the case of USDT, but let's just assume for the sake of discussion that Tether is truthful) they shouldn't have a hard time doing what they plan to do.
- rednerrus 4y agoIsn't parking Billions of dollars in reserve a waste of capital?
- dan-robertson 4y agoFirstly it isn’t so easy to just ‘park’ billions of dollars. Even if they’re in a bank they can be lent out by the bank. Secondly the point is sort-of that an organisation like tether doesn’t get the choice: their purpose is to hold dollars and issue equal amounts of their IOU, just like when a bank holds shares in Volkswagen and issues an equal amount of the ADR (the ADR represents the shares held by the bank but, unlike Volkswagen stock, can trade in US markets) because their job is to hold these two meant-to-be-equivalent things rather than to hold Tesla stock instead because they think that would be less of a waste of capital. If people felt that it was a waste of capital to put money into tethers then maybe they wouldn’t do it (but of course if you have tethers you can lend them in crypto things rather than regular things and maybe you think that’s actually better so you don’t care what tether the company does)