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Stablecoins will all collapse eventually, and then take down all but a few of the cryto currencies. To my understanding (I am not a crypto expert, just a casua

Stablecoins will all collapse eventually, and then take down all but a few of the cryto currencies. To my understanding (I am not a crypto expert, just a casual observer) Stablecoins basically collateralize a certain percentage of the outstanding coin in order to provide the "peg"... so maybe 1:10 coins is backed by USD, Btc, real estate, or whatever... and then the exchange rate is set and as long as everyone plays along, it works. If an actor starts redeeming a significant percentage of coin for collateral, then there is less and less collateral to prop up the coin. Same effect if that collateral loses value. It is also my opinion that most crypto "has value" only because it is relatively liquid and can be "cashed out" to USD via an exchange or stablecoin. When people start to recognize the stablecoin scam, the price of all crypto will collapse because the liquidity and USD exchange will disappear in an instant. edit: same thing happened with the USD when it lost the gold backing (and too much redemption led to the decoupling, not enough collateral). In the crypto world, I would say that BTC is the gold equivalent that provides the collateral and legitimacy, so maybe a temporary panic will provide a good BTC buying opportunity? We will see.

zaphod12 4y ago
So that's just 1 kind of stablecoin. The other is algorithmic - Terra was in that model. There are many excellent descriptions online, but essentially the backing entity buys and sells another coin (Luna in the case of Terra) whose value can fluctuate to maintain the price of their stablecoin. They are kinda genius in theory and so far rather messy in practice.
- zivkovicp 4y ago
  No doubt, there are a lot of brilliant minds at work in this space and I hope it becomes more mainstream. I'm still a bit of a skeptic though when it comes to anything other than Bitcoin and tend to believe that it's all just a liquidity game and if you can maintain the illusion of USD liquidity, you will keep the ball rolling and rake in a lot of money. Ultimately they do it so they can exchange their coin for USD, or maybe buy real estate, etc.
PKop 4y ago
> a certain percentage of > ...Btc, real estate, or whatever USDC is over-collateralized by cash and US government securities. There is a difference between centralized (at least) 1:1 tokens backed by dollars, and "decentralized" algo-stablecoins that use convoluted exchange mechanisms and often lose their peg. You can deposit USDC at Coinbase, circle, other exchanges and get cash easily.
- zivkovicp 4y ago
  I did not know that. +1
- SemanticStrengh 4y ago
  Correct comments should not be downvoted.
  - zivkovicp 4y ago
    It's HN, even a slightly unpopular opinion will result in half of your comment history getting downvoted, especially on topics with fanatical followings like crypto. ¯\_(ツ)_/¯
    - SemanticStrengh 4y ago
      In fact I have a high respect for people that have negative karma accounts because of this
jcfrei 4y ago
The DAI algorithmic stablecoin has been around for over 2 years now and hasn't broken its peg (though it has fluctuated around $1 a lot in the beginning). All these stablecoins breaking their pegs usually promise some crazy yield one way or another and are therefore much less stable than they appear to be.
- polygamous_bat 4y ago
  > The DAI algorithmic stablecoin has been around for over 2 years now and hasn't broken its peg Past performance doesn't guarantee future rewards. This same sentence could be said for Terra/UST up until sometimes last week. Afaik the two differences between DAI and UST is 1. DAI is backed by Eth instead of Luna, and 2. DAI is ideally backed to 200%, although the requirements have been adjusted downwards (so < 200%). So explain to me what's backing DAI except for hopes and prayers of cryptobros worldwide that Ethereum is gonna change the world someday, very soon (and probably around when it moves over to Eth 2.0 sometimes in the next 18 months, this time for sure!)
  - vmception 4y ago
    DAI is primarily backed by USDC actually, and then ETH. There is a funny argument to be made about that, but you didn't make it. My thoughts are that the MakerDAO (DAI) community existed too early and didn't have other backing options, so gravitated towards centralized collateral for their decentralized stablecoin, despite the irony. There are newer communities of stablecoins with a similar design to DAI that chose different decentralized collateral options, and are functioning just as well. None of them are perfect though, usually some baggage with the founding team, or a shitty governance platform. But they're working okay. My only point here is let's just criticize the accurate thing.
- DebtDeflation 4y ago
  The whole idea of stablecoin yield is a scam. Generating yield by staking is a literal ponzi scheme. Generating yield by loaning means taking on default risk so your stablecoin is no longer stable in that you can lose principal. The regulators are asleep at the wheel. All the people posting "Yoooooooo! 20% yield on my stablecoin. Living large!" on Instagram will be the first to demand that the government "do something" when their life savings evaporates overnight.
Vladimof 4y ago
> Stablecoins will all collapse eventually, and then take down all but a few of the cryto currencies. To my understanding (I am not a crypto expert, just a casual observer) [...] These two sentences appear to contradict each other...
- jerf 4y ago
  This is possibly one of those rare cases when knowing a bit less is actually helpful. Any "stablecoin" not based on 100% hard asset redemption is a financial perpetual motion machine in proportion to how much of its market cap is not backed by hard assets. It can work for a while but it is fundamentally unstable and fundamentally guaranteed to collapse after a certain point. Knowing "too much" about the cryptocurrency mechanics and this algorithm and that detail of how they redeem and all the other mechanical details really reminds me of people who put forth very complicated mechanical perpetual motion machines and basically meet all objections about how perpetual motion is not possible by pointing at their machine and saying (in essense) "But look how complicated that is! You can't prove it doesn't work, it's too complicated!" But I don't have to. I don't need to learn the details of the exact obscure magnetic effect you're using or delve deeply into your exotic dark-matter-catalyzed fusion or theory about how your machine captures zero point energy or take out my crystals to examine your machine's chi. All I need to see is that energy is conserved and/or your machine is not actually putting out any power across long terms. Stablecoins are not possible in the long term. I don't need to know the exact financial machinations of this or that stablecoin to know that. They are fundamentally castles in the sky. The other problem "stablecoins" have is that there is very little incentive for anyone to create a coin that is actually hard-backed by 100% assets. In that situation, all the backer is doing is signing up to lose the assets once the market burps, the stablecoin appreciates even a bit, and everyone redeems them. There's this fundamental mismatch between incentives, a fundamental inability to peg one asset to another by fiat, a number of fundamental impossibilities, really. I find myself wondering if it comes back to the fundamental misapprehension shared by so many crypto advocates that money's value is just completely arbitrary, and easily changed. If so, why not just arbitrarily declare that this stable coin is worth one dollar? We shouldn't even need any backing to that claim at all, since money's value is so arbitrary, so 10% backing in dollars and 30% backing in other cryptocurrencies should be more than enough, right? Well, even if money's value is an "opinion", it turns out the collective opinion of millions of people and numerous governments still provides the system rather a lot of mass, and it doesn't move around easily as they think and isn't as arbitrary as they think. Certainly it isn't infinitely strong; I'm rather a dollar skeptic myself lately. But there's a big difference between the concepts of a completely arbitrary value of low mass and any value with the mass of millions or billions of people and governments behind it.

zaphod12 4y ago

So that's just 1 kind of stablecoin. The other is algorithmic - Terra was in that model. There are many excellent descriptions online, but essentially the backing entity buys and sells another coin (Luna in the case of Terra) whose value can fluctuate to maintain the price of their stablecoin. They are kinda genius in theory and so far rather messy in practice.

zivkovicp 4y ago
No doubt, there are a lot of brilliant minds at work in this space and I hope it becomes more mainstream. I'm still a bit of a skeptic though when it comes to anything other than Bitcoin and tend to believe that it's all just a liquidity game and if you can maintain the illusion of USD liquidity, you will keep the ball rolling and rake in a lot of money. Ultimately they do it so they can exchange their coin for USD, or maybe buy real estate, etc.

PKop 4y ago

> a certain percentage of > ...Btc, real estate, or whatever USDC is over-collateralized by cash and US government securities. There is a difference between centralized (at least) 1:1 tokens backed by dollars, and "decentralized" algo-stablecoins that use convoluted exchange mechanisms and often lose their peg. You can deposit USDC at Coinbase, circle, other exchanges and get cash easily.

zivkovicp 4y ago
I did not know that. +1
SemanticStrengh 4y ago
Correct comments should not be downvoted.
- zivkovicp 4y ago
  It's HN, even a slightly unpopular opinion will result in half of your comment history getting downvoted, especially on topics with fanatical followings like crypto. ¯\_(ツ)_/¯
  - SemanticStrengh 4y ago
    In fact I have a high respect for people that have negative karma accounts because of this

jcfrei 4y ago

The DAI algorithmic stablecoin has been around for over 2 years now and hasn't broken its peg (though it has fluctuated around $1 a lot in the beginning). All these stablecoins breaking their pegs usually promise some crazy yield one way or another and are therefore much less stable than they appear to be.

polygamous_bat 4y ago
> The DAI algorithmic stablecoin has been around for over 2 years now and hasn't broken its peg Past performance doesn't guarantee future rewards. This same sentence could be said for Terra/UST up until sometimes last week. Afaik the two differences between DAI and UST is 1. DAI is backed by Eth instead of Luna, and 2. DAI is ideally backed to 200%, although the requirements have been adjusted downwards (so < 200%). So explain to me what's backing DAI except for hopes and prayers of cryptobros worldwide that Ethereum is gonna change the world someday, very soon (and probably around when it moves over to Eth 2.0 sometimes in the next 18 months, this time for sure!)
- vmception 4y ago
  DAI is primarily backed by USDC actually, and then ETH. There is a funny argument to be made about that, but you didn't make it. My thoughts are that the MakerDAO (DAI) community existed too early and didn't have other backing options, so gravitated towards centralized collateral for their decentralized stablecoin, despite the irony. There are newer communities of stablecoins with a similar design to DAI that chose different decentralized collateral options, and are functioning just as well. None of them are perfect though, usually some baggage with the founding team, or a shitty governance platform. But they're working okay. My only point here is let's just criticize the accurate thing.
DebtDeflation 4y ago
The whole idea of stablecoin yield is a scam. Generating yield by staking is a literal ponzi scheme. Generating yield by loaning means taking on default risk so your stablecoin is no longer stable in that you can lose principal. The regulators are asleep at the wheel. All the people posting "Yoooooooo! 20% yield on my stablecoin. Living large!" on Instagram will be the first to demand that the government "do something" when their life savings evaporates overnight.

Vladimof 4y ago

> Stablecoins will all collapse eventually, and then take down all but a few of the cryto currencies. To my understanding (I am not a crypto expert, just a casual observer) [...] These two sentences appear to contradict each other...

jerf 4y ago
This is possibly one of those rare cases when knowing a bit less is actually helpful. Any "stablecoin" not based on 100% hard asset redemption is a financial perpetual motion machine in proportion to how much of its market cap is not backed by hard assets. It can work for a while but it is fundamentally unstable and fundamentally guaranteed to collapse after a certain point. Knowing "too much" about the cryptocurrency mechanics and this algorithm and that detail of how they redeem and all the other mechanical details really reminds me of people who put forth very complicated mechanical perpetual motion machines and basically meet all objections about how perpetual motion is not possible by pointing at their machine and saying (in essense) "But look how complicated that is! You can't prove it doesn't work, it's too complicated!" But I don't have to. I don't need to learn the details of the exact obscure magnetic effect you're using or delve deeply into your exotic dark-matter-catalyzed fusion or theory about how your machine captures zero point energy or take out my crystals to examine your machine's chi. All I need to see is that energy is conserved and/or your machine is not actually putting out any power across long terms. Stablecoins are not possible in the long term. I don't need to know the exact financial machinations of this or that stablecoin to know that. They are fundamentally castles in the sky. The other problem "stablecoins" have is that there is very little incentive for anyone to create a coin that is actually hard-backed by 100% assets. In that situation, all the backer is doing is signing up to lose the assets once the market burps, the stablecoin appreciates even a bit, and everyone redeems them. There's this fundamental mismatch between incentives, a fundamental inability to peg one asset to another by fiat, a number of fundamental impossibilities, really. I find myself wondering if it comes back to the fundamental misapprehension shared by so many crypto advocates that money's value is just completely arbitrary, and easily changed. If so, why not just arbitrarily declare that this stable coin is worth one dollar? We shouldn't even need any backing to that claim at all, since money's value is so arbitrary, so 10% backing in dollars and 30% backing in other cryptocurrencies should be more than enough, right? Well, even if money's value is an "opinion", it turns out the collective opinion of millions of people and numerous governments still provides the system rather a lot of mass, and it doesn't move around easily as they think and isn't as arbitrary as they think. Certainly it isn't infinitely strong; I'm rather a dollar skeptic myself lately. But there's a big difference between the concepts of a completely arbitrary value of low mass and any value with the mass of millions or billions of people and governments behind it.