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> Traders are taking advantage of this arbitrage mismatch, buying up DEI coins and exchanging them for $1 worth of collateral, making matters worse. Deus Financ

> Traders are taking advantage of this arbitrage mismatch, buying up DEI coins and exchanging them for $1 worth of collateral, making matters worse. Deus Finance reacted by halting the redemption process in order to try and stabilize the coin. Good luck with that. Who else is reminded of the story of George Soros "[making] $1.5 billion in just a single month [in late 1992] by betting [that] the British pound and several other European currencies were priced too richly against the German deutsche mark"[0] ? [0] https://www.forbes.com/sites/steveschaefer/2015/07/07/forbes-flashback-george-soros-british-pound-euro-ecb/ https://www.forbes.com/sites/steveschaefer/2015/07/07/forbes...

Ekaros 4y ago
Isn't entire point of stablecoin that you can redeem it for the face value at any time? Not being able to redeem it seems like violating the contract or changing the rules while game is running...
- phire 4y ago
  - cowtools 4y ago
    Well, the users did agree to the code when they bought $cryptocurrency
    - phire 4y ago
      Are all the users programmers, are they fluent with the language and frameworks? Could they even read the code if they wanted to? Even if they could read the code and understand that there is a mechanism in place that allows designated humans to pause redemption, the code says nothing about when and how this mechanism should be used. The user might reasonably expect such a mechanism would only be used in an emergency, like the network has been hacked, or there is a bug. They might expect that it would never be used for the financial advantage of the network operators simply because the coin has depegged and redemption is acting as expected.
      - coding_unit_1 4y ago
        You've neatly captured why TradFi regulation is a thing.
      - reedjosh 4y ago
        Users that don't understand these things shouldn't jump into the market and buy the hottest thing. They should probably stick to long lasting products like BTC, ETH, or XMR. > The user might reasonably expect such a mechanism would only be used in an emergency A de-peg event is an emergency if there's not enough real value to back it. The USD was depegged from gold in the seventies for very similar reasons. In both cases the printer got ahead of the backing. Today we use a currency that survived a de-peg event due to military backing.
      - ibejoeb 4y ago
        > Are all the users programmers, are they fluent with the language That's a fair criticism, but isn't it the status quo in the industry in general? Surely most people with stakes in the markets don't truly understand the regulations or the innate dynamics of them.
  - ipnon 4y ago
    What makes central bank currencies special is that institutions like the Fed can "mint" or "burn" dollars whenever they please to maintain the "peg". In reality they're targeting a 2% floating rate of inflation, and the "minting" is done by making loans to banks that are motivated by economic stability instead of profit. Crypto stable coins don't have this luxury because this mechanism is founded upon trust in the central bank's governance and the underlying government.
    - School-Cotton 4y ago
      Correct. You’ve discovered one of the many disadvantages with cryptocurrencies relative to traditional finance.
      - stickfigure 4y ago
        Also the advantage! Sometimes central banks screw up the minting process and severely damage the currency (see: Argentina, Venezuela, Zimbabwe). Historically, currencies are a mixed bag and we should be glad there is more than one.
        Fnoord 4y ago
        Right, and you can add Russia to that list most likely, but I live in a relatively stable country.
- Spivak 4y ago
  I’m sure in the contract it says they have the right to “delay” redemption. Really is amazing that the crypto world is finally discovering bank runs. We’re truly living like it’s 1929.
- izzydata 4y ago
  Yea, but to me it sounds like the same problem as a bank run. If everyone tried to retrieve their money from the bank at the same time they wouldn't have enough money.
  - salawat 4y ago
    Correct. These exchanges are banks, which are reliant on statistical multiplexing. There is quite literally zero difference between the sets of failure states that "stablecoins" are vulnerable to. ...which makes you wonder: why the cryptographic overhead at all? Oh wait... Because places want to be banks, without adhering to the regulations thereof...
    - throwanem 4y ago
      > statistical multiplexing "Fractional reserve."
  - trompetenaccoun 4y ago
    That's true for banks but it's not a similar mechanism in any way. You should look into the term 'algorithmic stablecoin', these are basically a scam and don't work, which is why they keep losing their peg. There are other examples long before the media started paying attention and people in the crypto space have warned about this for ages. Of course, some might call fractional reserve banking a scam as well but what these algorithmic stablecoins are doing isn't the same thing as the credit creation by private banks. It's more like they tried to create a "decentralized" central bank. I put that in quotations because the ones I know aren't actually decentralized either, they just use such buzzwords to trick traders. Not all stablecoins work that way. There are more reputable ones like DAI or USDC. Actually the first stablecoins were all collateralized, the shananigans started in 2017 during the last bubble and now there are even more of these scammy projects because the market has grown so much. Adoption brings in a lot of newbies with money, and that in turn attracts charlatans of course. You can get a feel for what level of education the general public has when even in a tech forum most people don't understand anything about the economics and mechanisms of all these projects.
- sumeno 4y ago
  The big stablecoins have terms of service that say they don't guarantee you can ever redeem them.
  - djbusby 4y ago
    What!? how is there a TOS on a coin? Maybe TOS on a gateway site?
    - E4YomzYIN5YEBKe 4y ago
      A coin is code and the code for pretty much every stable coin allow the creator to prevent coins from being sent to/from blacklisted addresses. Tether freezes $150 million in USDT https://cointelegraph.com/news/tether-freezes-150-million-in-usdt https://cointelegraph.com/news/tether-freezes-150-million-in... Circle Confirms Freezing $100K in USDC at Law Enforcement's Request https://www.coindesk.com/markets/2020/07/08/circle-confirms-freezing-100k-in-usdc-at-law-enforcements-request/ https://www.coindesk.com/markets/2020/07/08/circle-confirms-...
    - aabhay 4y ago
      stable coins with redemption must be centralized at the point of fiat exchange.
    - FabHK 4y ago
      There are 1. purely algorithmic stable coins (on-chain), such as UST. Voodoo, if you ask me. Can be decentralised. 2. (over)collateralised stable coins (on-chain), such as DAI (not DEI, which is at issue here). Collateralised by other crypto, smart contracts, and what have you. Can still be decentralised. 3. collateralised stable coins (off-chain), such as USDC or (allegedly) USDT. Those are collateralised by good old USD (or treasuries or commercial paper). Those need a central authority that holds on to the USD (or whatever form the collateral takes). So, makes sense that they have TOS.
- jMyles 4y ago
  The "entire point"? What, in your mind, does redemption mean for an algo stable? Obviously, as we've seen, algo stables are subject to their own engineered ponzinomics, but I don't think redemption is "the entire point", or even a cognizable concept.
- DebtDeflation 4y ago
  Yes, a true "stablecoin" would be 100% backed by deposits in a known and verifiable money market account and able to be withdrawn into USD or other real currency on demand at a 1:1 ratio. None of the things called stablecoins today meet this very simple set of criteria.
  - FabHK 4y ago
    Does USDC not fit that description?
    - DebtDeflation 4y ago
      https://en.wikipedia.org/wiki/USD_Coin https://en.wikipedia.org/wiki/USD_Coin >The wording on the Circle website changed from the previous "backed by US dollars" to "backed by fully reserved assets" by June 2021. >USDC reserves are regularly attested (but not audited) by Grant Thornton, LLP This is the same bullshit that Tether has repeatedly pulled.
      - FabHK 4y ago
        Ah, thanks for the info. I thought Coinbase was more reputable.
      - noneeeed 4y ago
        What's the difference between "attested" and "audited" in this context. That really sounds like a linguistic cop-out.
        vkou 4y ago
        My understanding is that an attestation that you have a billion dollars looks at your bank balance, and observes that you have a billion dollars in your accounts. An audit looks at the history of your overall financials, to ensure that you didn't just borrow that billion dollars two days ago for the sole purpose of passing the audit. Or that you didn't, like, cash a half-billion dollar check from yourself to yourself, and have the money immediately show up in the destination account, before it was debited from the source account.
- SilasX 4y ago
  I think that's confusing means and ends. The point of stablecoins is to have something that's the same value as a dollar, but which can interface with ("all the wonderful magic of") smartcontracts. One way to achieve that is to have a big trusted organization honor redemption on demand. (GUSD and, I think but don't quote me, USDC.) Another way is for an org to consistently honor enough redemptions (but not on an on-demand basis) that it trades at par (USDT, for now). Another (dubious, increasingly unreliable) way is for some cryptocurrency to automatically buy the stablecoin when it falls below par (TerraUSD/UST with LUNA, already failed).[1] Yet another is to issue the stablecoin only in return for a significant collateral buffer (with other cryptocurrencies) and force sellbacks when the collateral gets too close to critical (DAI and, I think, FEI, not to be confused with the DEI in this story). [1] TerraUSD's platform had the Ponzi-esque Anchor paying 20% returns, but is stabilizing mechanism did not (attempt to) depend on this in any direct sense.
formerly_proven 4y ago
> Deus Finance reacted by halting the redemption process in order to try and stabilize the coin. Nothing to see here, move along
IAmEveryone 4y ago
I don't quite understand how these traders are "making matters worse" by using the defining characteristic of a "stablecoin". If anything is making matters worse, it would seem to be the "reaction" of halting the redemption process.
- Tenoke 4y ago
  Presumably because it would be more likely to stabilize if they didn't take advantage but it's designed so they would so one can't really complain about that.
- sp332 4y ago
  Yes, normally buying DEI would help drive demand and thus price back upward. The article mentions that arbitrage bots do this all the time and it helps maintain the peg. It's only a problem when it's too difficult to mint new DEI (putting collateral into the system).
  - pas 4y ago
    could you explain this in a bit more detail? why it's difficult to mint new DEI, or why it's difficult to put collateral into the system? is the incentive that "currently it trades below 1.0, so I buy it, then redeem it for 1.0" which should drive the price up, right? where does the money come from to finance this arbitrage? is there a redemption pool that shrinks every time someone executes this cycle?
- jbverschoor 4y ago
  The same way we can do by organizing bank runs. They’re illegal, but in reality the system is just broken
  - logifail 4y ago
    > The same way we can do by organizing bank runs. They’re illegal [..] Source? Imagine we're all back in early September 2008, and one of us were to post that Lehman Brothers was suffering unprecedented losses due to the subprime mortgage crisis. Would you count that as organizing a bank run? > in reality the system is just broken Indeed. Yet another system which only reveals just how broken it is when you apply enough pressure.
haasted 4y ago
Sounds a lot like the same mechanism that undid the Iron Finance stablecoin [0]: > One IRON token is always redeemable for $1 worth of collateral, which on IRON is a mixture of TITAN and the Circle and Coinbase-created stablecoin USDC. [0] https://thedefiant.io/iron-finance-implodes-after-bank-run/ https://thedefiant.io/iron-finance-implodes-after-bank-run/
- lalaland1125 4y ago
  It's also the same problem that UST had. Algorithmic stablecoins don't work
  - yokem55 4y ago
    Undercollateralized algorithmic stablecoins that use their own issued coin as a '1:1' collateral don't work because they depend on ponzi growth to maintain the illusion of it working. Overcollateralized algo stables such as DAI are much more sustainable. They require substatially more of a user's unrelated capital (whitelisted assets not based on the stablecoin's issuing protocol such as eth or wbtc which also have relatively deep liquidity available on the market) to be locked up and held as collateral to mint the stablecoin. And that makes drawing down the supply much smoother when times get rough as folks with their capital locked up will repay their debt on their own or have the market do it for them in a liquidation of locked capital. This repayment is what burns the supply and keeps the stable from falling far below peg. In fact historically, DAI's problem was that it would go way over peg during drawdowns because damand for DAI to stave off or participate in liquidations would push the usd price of dai way up. It is highly capital inefficient model, as it takes roughly at least $1.50 of the other asset to mint $1.00 worth of stablecoin, and users will usually go for a much higher ratio to prevent the liquidation threshold from kicking in. And this capital inefficiency really kneecaps growth since you can't mint anywhere near as much of the stablecoin, but it also means the protocol and thus the stablecoin is much more robust in downturns. Now it still has real risks because the protocol still depends on lively and accurate oracles to watch and report the collateral values, and that liquidations execute properly when collateral values fall enough to trigger them. But those risks are much more manageable compared to the risks undercollateralized stablecoins present.
UncleMeat 4y ago
"Cryptocurrencies are trustless, distributed, and uncensorable." "The team behind cryptocurrency X has halted a primary use of the tokens." Hmm...
- EdwardDiego 4y ago
  Has Binance "gone down for maintenance" yet? Typically happens when the market's scary.
  - Tenoke 4y ago
    The market isn't 'scary', this is a small stablecoin, and overall the crypto market is up today[0]. Also exchanges do have issues when the volume is much above the norm but this if anything happens as or more often when there's a lot of buying pressure. It's also much more of an issue with e.g. Coinbase than Binance. Binance are more likely to let you trade as you wish but temporarily disable withdraws while they move funds around. 0. https://www.coingecko.com/ https://www.coingecko.com/
    - logifail 4y ago
      > Binance are more likely to let you trade as you wish but temporarily disable withdraws while they move funds around I was under the impression that providers being able to "temporarily disable withdrawals" [due to lack of liquidity, political pressure, or indeed any other reason] is one of the key things that crypto didn't suffer from?
      - Tenoke 4y ago
        On-chain sure. I am not sure why you'd expect guarantees off-chain. If you let me handle an asset for you instead of handling it yourself you are bound by how I operate, not just how the asset itself operates. Though I am also not sure why you'd think liquidity doesn't matter, that's neither here nor there.
        4y ago
mytailorisrich 4y ago
These so-called 'stablecoins' are bound to end badly, frankly. It's the same story repeating itself again and again, just need to wait long enough for a new generation to come of age and think that past history does not apply to them.
SemanticStrengh 4y ago
for DEI there is no redemption..
icambron 4y ago
> buying up DEI coins and exchanging them for $1 worth of collateral Doesn’t seem like this would be possible? When the peg fails, wouldn’t all the people holding the coin flood the redemption process, immediately draining it of all USD? Or put it this way: those traders buying the coin for 80 cents and then redeeming it for a dollar…who are they buying it from and why wouldn’t they redeem it? They just left 20 cents on the table. I feel like I’m missing something.
- vkou 4y ago
  I'm just guessing, here, but it's possible you're missing the exit strategy where the insiders are calmly walking towards the escape pods.
zzleeper 4y ago
Wouldn't it had made more sense for the "market makers" to buy the coins themselves at half the price instead of waiting for arbitragers to just pocket the extra money?
- deleted 4y ago
  [deleted]

Ekaros 4y ago

Isn't entire point of stablecoin that you can redeem it for the face value at any time? Not being able to redeem it seems like violating the contract or changing the rules while game is running...

phire 4y ago
- cowtools 4y ago
  Well, the users did agree to the code when they bought $cryptocurrency
  - phire 4y ago
    Are all the users programmers, are they fluent with the language and frameworks? Could they even read the code if they wanted to? Even if they could read the code and understand that there is a mechanism in place that allows designated humans to pause redemption, the code says nothing about when and how this mechanism should be used. The user might reasonably expect such a mechanism would only be used in an emergency, like the network has been hacked, or there is a bug. They might expect that it would never be used for the financial advantage of the network operators simply because the coin has depegged and redemption is acting as expected.
    - coding_unit_1 4y ago
      You've neatly captured why TradFi regulation is a thing.
    - reedjosh 4y ago
      Users that don't understand these things shouldn't jump into the market and buy the hottest thing. They should probably stick to long lasting products like BTC, ETH, or XMR. > The user might reasonably expect such a mechanism would only be used in an emergency A de-peg event is an emergency if there's not enough real value to back it. The USD was depegged from gold in the seventies for very similar reasons. In both cases the printer got ahead of the backing. Today we use a currency that survived a de-peg event due to military backing.
    - ibejoeb 4y ago
      > Are all the users programmers, are they fluent with the language That's a fair criticism, but isn't it the status quo in the industry in general? Surely most people with stakes in the markets don't truly understand the regulations or the innate dynamics of them.
- ipnon 4y ago
  What makes central bank currencies special is that institutions like the Fed can "mint" or "burn" dollars whenever they please to maintain the "peg". In reality they're targeting a 2% floating rate of inflation, and the "minting" is done by making loans to banks that are motivated by economic stability instead of profit. Crypto stable coins don't have this luxury because this mechanism is founded upon trust in the central bank's governance and the underlying government.
  - School-Cotton 4y ago
    Correct. You’ve discovered one of the many disadvantages with cryptocurrencies relative to traditional finance.
    - stickfigure 4y ago
      Also the advantage! Sometimes central banks screw up the minting process and severely damage the currency (see: Argentina, Venezuela, Zimbabwe). Historically, currencies are a mixed bag and we should be glad there is more than one.
      - Fnoord 4y ago
        Right, and you can add Russia to that list most likely, but I live in a relatively stable country.
Spivak 4y ago
I’m sure in the contract it says they have the right to “delay” redemption. Really is amazing that the crypto world is finally discovering bank runs. We’re truly living like it’s 1929.
izzydata 4y ago
Yea, but to me it sounds like the same problem as a bank run. If everyone tried to retrieve their money from the bank at the same time they wouldn't have enough money.
- salawat 4y ago
  Correct. These exchanges are banks, which are reliant on statistical multiplexing. There is quite literally zero difference between the sets of failure states that "stablecoins" are vulnerable to. ...which makes you wonder: why the cryptographic overhead at all? Oh wait... Because places want to be banks, without adhering to the regulations thereof...
  - throwanem 4y ago
    > statistical multiplexing "Fractional reserve."
- trompetenaccoun 4y ago
  That's true for banks but it's not a similar mechanism in any way. You should look into the term 'algorithmic stablecoin', these are basically a scam and don't work, which is why they keep losing their peg. There are other examples long before the media started paying attention and people in the crypto space have warned about this for ages. Of course, some might call fractional reserve banking a scam as well but what these algorithmic stablecoins are doing isn't the same thing as the credit creation by private banks. It's more like they tried to create a "decentralized" central bank. I put that in quotations because the ones I know aren't actually decentralized either, they just use such buzzwords to trick traders. Not all stablecoins work that way. There are more reputable ones like DAI or USDC. Actually the first stablecoins were all collateralized, the shananigans started in 2017 during the last bubble and now there are even more of these scammy projects because the market has grown so much. Adoption brings in a lot of newbies with money, and that in turn attracts charlatans of course. You can get a feel for what level of education the general public has when even in a tech forum most people don't understand anything about the economics and mechanisms of all these projects.
sumeno 4y ago
The big stablecoins have terms of service that say they don't guarantee you can ever redeem them.
- djbusby 4y ago
  What!? how is there a TOS on a coin? Maybe TOS on a gateway site?
  - E4YomzYIN5YEBKe 4y ago
    A coin is code and the code for pretty much every stable coin allow the creator to prevent coins from being sent to/from blacklisted addresses. Tether freezes $150 million in USDT https://cointelegraph.com/news/tether-freezes-150-million-in-usdt https://cointelegraph.com/news/tether-freezes-150-million-in... Circle Confirms Freezing $100K in USDC at Law Enforcement's Request https://www.coindesk.com/markets/2020/07/08/circle-confirms-freezing-100k-in-usdc-at-law-enforcements-request/ https://www.coindesk.com/markets/2020/07/08/circle-confirms-...
  - aabhay 4y ago
    stable coins with redemption must be centralized at the point of fiat exchange.
  - FabHK 4y ago
    There are 1. purely algorithmic stable coins (on-chain), such as UST. Voodoo, if you ask me. Can be decentralised. 2. (over)collateralised stable coins (on-chain), such as DAI (not DEI, which is at issue here). Collateralised by other crypto, smart contracts, and what have you. Can still be decentralised. 3. collateralised stable coins (off-chain), such as USDC or (allegedly) USDT. Those are collateralised by good old USD (or treasuries or commercial paper). Those need a central authority that holds on to the USD (or whatever form the collateral takes). So, makes sense that they have TOS.
jMyles 4y ago
The "entire point"? What, in your mind, does redemption mean for an algo stable? Obviously, as we've seen, algo stables are subject to their own engineered ponzinomics, but I don't think redemption is "the entire point", or even a cognizable concept.
DebtDeflation 4y ago
Yes, a true "stablecoin" would be 100% backed by deposits in a known and verifiable money market account and able to be withdrawn into USD or other real currency on demand at a 1:1 ratio. None of the things called stablecoins today meet this very simple set of criteria.
- FabHK 4y ago
  Does USDC not fit that description?
  - DebtDeflation 4y ago
    https://en.wikipedia.org/wiki/USD_Coin https://en.wikipedia.org/wiki/USD_Coin >The wording on the Circle website changed from the previous "backed by US dollars" to "backed by fully reserved assets" by June 2021. >USDC reserves are regularly attested (but not audited) by Grant Thornton, LLP This is the same bullshit that Tether has repeatedly pulled.
    - FabHK 4y ago
      Ah, thanks for the info. I thought Coinbase was more reputable.
    - noneeeed 4y ago
      What's the difference between "attested" and "audited" in this context. That really sounds like a linguistic cop-out.
      - vkou 4y ago
        My understanding is that an attestation that you have a billion dollars looks at your bank balance, and observes that you have a billion dollars in your accounts. An audit looks at the history of your overall financials, to ensure that you didn't just borrow that billion dollars two days ago for the sole purpose of passing the audit. Or that you didn't, like, cash a half-billion dollar check from yourself to yourself, and have the money immediately show up in the destination account, before it was debited from the source account.
SilasX 4y ago
I think that's confusing means and ends. The point of stablecoins is to have something that's the same value as a dollar, but which can interface with ("all the wonderful magic of") smartcontracts. One way to achieve that is to have a big trusted organization honor redemption on demand. (GUSD and, I think but don't quote me, USDC.) Another way is for an org to consistently honor enough redemptions (but not on an on-demand basis) that it trades at par (USDT, for now). Another (dubious, increasingly unreliable) way is for some cryptocurrency to automatically buy the stablecoin when it falls below par (TerraUSD/UST with LUNA, already failed).[1] Yet another is to issue the stablecoin only in return for a significant collateral buffer (with other cryptocurrencies) and force sellbacks when the collateral gets too close to critical (DAI and, I think, FEI, not to be confused with the DEI in this story). [1] TerraUSD's platform had the Ponzi-esque Anchor paying 20% returns, but is stabilizing mechanism did not (attempt to) depend on this in any direct sense.

formerly_proven 4y ago

> Deus Finance reacted by halting the redemption process in order to try and stabilize the coin. Nothing to see here, move along

IAmEveryone 4y ago

I don't quite understand how these traders are "making matters worse" by using the defining characteristic of a "stablecoin". If anything is making matters worse, it would seem to be the "reaction" of halting the redemption process.

Tenoke 4y ago
Presumably because it would be more likely to stabilize if they didn't take advantage but it's designed so they would so one can't really complain about that.
sp332 4y ago
Yes, normally buying DEI would help drive demand and thus price back upward. The article mentions that arbitrage bots do this all the time and it helps maintain the peg. It's only a problem when it's too difficult to mint new DEI (putting collateral into the system).
- pas 4y ago
  could you explain this in a bit more detail? why it's difficult to mint new DEI, or why it's difficult to put collateral into the system? is the incentive that "currently it trades below 1.0, so I buy it, then redeem it for 1.0" which should drive the price up, right? where does the money come from to finance this arbitrage? is there a redemption pool that shrinks every time someone executes this cycle?
jbverschoor 4y ago
The same way we can do by organizing bank runs. They’re illegal, but in reality the system is just broken
- logifail 4y ago
  > The same way we can do by organizing bank runs. They’re illegal [..] Source? Imagine we're all back in early September 2008, and one of us were to post that Lehman Brothers was suffering unprecedented losses due to the subprime mortgage crisis. Would you count that as organizing a bank run? > in reality the system is just broken Indeed. Yet another system which only reveals just how broken it is when you apply enough pressure.

haasted 4y ago

Sounds a lot like the same mechanism that undid the Iron Finance stablecoin [0]: > One IRON token is always redeemable for $1 worth of collateral, which on IRON is a mixture of TITAN and the Circle and Coinbase-created stablecoin USDC. [0] https://thedefiant.io/iron-finance-implodes-after-bank-run/ https://thedefiant.io/iron-finance-implodes-after-bank-run/

lalaland1125 4y ago
It's also the same problem that UST had. Algorithmic stablecoins don't work
- yokem55 4y ago
  Undercollateralized algorithmic stablecoins that use their own issued coin as a '1:1' collateral don't work because they depend on ponzi growth to maintain the illusion of it working. Overcollateralized algo stables such as DAI are much more sustainable. They require substatially more of a user's unrelated capital (whitelisted assets not based on the stablecoin's issuing protocol such as eth or wbtc which also have relatively deep liquidity available on the market) to be locked up and held as collateral to mint the stablecoin. And that makes drawing down the supply much smoother when times get rough as folks with their capital locked up will repay their debt on their own or have the market do it for them in a liquidation of locked capital. This repayment is what burns the supply and keeps the stable from falling far below peg. In fact historically, DAI's problem was that it would go way over peg during drawdowns because damand for DAI to stave off or participate in liquidations would push the usd price of dai way up. It is highly capital inefficient model, as it takes roughly at least $1.50 of the other asset to mint $1.00 worth of stablecoin, and users will usually go for a much higher ratio to prevent the liquidation threshold from kicking in. And this capital inefficiency really kneecaps growth since you can't mint anywhere near as much of the stablecoin, but it also means the protocol and thus the stablecoin is much more robust in downturns. Now it still has real risks because the protocol still depends on lively and accurate oracles to watch and report the collateral values, and that liquidations execute properly when collateral values fall enough to trigger them. But those risks are much more manageable compared to the risks undercollateralized stablecoins present.

UncleMeat 4y ago

"Cryptocurrencies are trustless, distributed, and uncensorable." "The team behind cryptocurrency X has halted a primary use of the tokens." Hmm...

EdwardDiego 4y ago
Has Binance "gone down for maintenance" yet? Typically happens when the market's scary.
- Tenoke 4y ago
  The market isn't 'scary', this is a small stablecoin, and overall the crypto market is up today[0]. Also exchanges do have issues when the volume is much above the norm but this if anything happens as or more often when there's a lot of buying pressure. It's also much more of an issue with e.g. Coinbase than Binance. Binance are more likely to let you trade as you wish but temporarily disable withdraws while they move funds around. 0. https://www.coingecko.com/ https://www.coingecko.com/
  - logifail 4y ago
    > Binance are more likely to let you trade as you wish but temporarily disable withdraws while they move funds around I was under the impression that providers being able to "temporarily disable withdrawals" [due to lack of liquidity, political pressure, or indeed any other reason] is one of the key things that crypto didn't suffer from?
    - Tenoke 4y ago
      On-chain sure. I am not sure why you'd expect guarantees off-chain. If you let me handle an asset for you instead of handling it yourself you are bound by how I operate, not just how the asset itself operates. Though I am also not sure why you'd think liquidity doesn't matter, that's neither here nor there.
      - 4y ago

mytailorisrich 4y ago

These so-called 'stablecoins' are bound to end badly, frankly. It's the same story repeating itself again and again, just need to wait long enough for a new generation to come of age and think that past history does not apply to them.

SemanticStrengh 4y ago

for DEI there is no redemption..

icambron 4y ago

> buying up DEI coins and exchanging them for $1 worth of collateral Doesn’t seem like this would be possible? When the peg fails, wouldn’t all the people holding the coin flood the redemption process, immediately draining it of all USD? Or put it this way: those traders buying the coin for 80 cents and then redeeming it for a dollar…who are they buying it from and why wouldn’t they redeem it? They just left 20 cents on the table. I feel like I’m missing something.

vkou 4y ago
I'm just guessing, here, but it's possible you're missing the exit strategy where the insiders are calmly walking towards the escape pods.

zzleeper 4y ago

Wouldn't it had made more sense for the "market makers" to buy the coins themselves at half the price instead of waiting for arbitragers to just pocket the extra money?

deleted 4y ago
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