4 ms·

But the liquidation of USDC represents the flow of real assets OUT of the ecosystem, thus rapidly inflating the price of ETH and any other cryptocurrency denomi

by boc 4y ago

But the liquidation of USDC represents the flow of real assets OUT of the ecosystem, thus rapidly inflating the price of ETH and any other cryptocurrency denominated in dollars. Aka if you start selling 2 USDC for 1 USD, then the price of ETH goes from $3000 to $6000 overnight. BUT those dollar signs in front of the price aren't US dollar signs, they are USDC dollar signs. Which means that I can engage in massive arbitrage between exchanges. Exchanges respond by sealing themselves off to protect their $3000 ETH from the $6000 fake ETH trade prices, thus creating a massive freeze in the market, thus wrecking the redemption system that underpins DAI. It's very, VERY important to realize that all of these things are interwoven. There's no such thing as "USDC collapsing" without it also taking all the crypto traded on Coinbase with it.

whimsicalism 4y ago
... no. The price of Ethereum in USDC is irrelevant. There is no arbitrage to be had. If the price of USDC falls, you have to spend more and more USDC to mint one Dai because Dai is tied to the price of the dollar, not USDC. Explain to me how you arbitrage USDC falling out of Dai? I really encourage you to read up more on this. There are real risks that come with Dai as a stablecoin (including eth or USDC collapsing very quickly) but they are not the risks that you are identifying.
- boc 4y ago
  My background is in international finance, and therefore when I promise you that DAI cannot defend a virtual peg without holding large amounts of actual underlying US treasuries or physical USD, I'm only making that promise because it's been true for every currency that has ever attempted to maintain a peg with the US dollar. Maybe it's "different this time" but I sincerely doubt it. I likewise encourage you to think about this from first principles and read up on the mechanics of a currency peg. You MUST be able to quickly sell T-bills on the market swiftly to defend your currency peg, otherwise you will see your currency break from the pegged range. DAI is shifting the reserves from directly holding USD or T-bills to holding USDC instead, which isn't the same thing as USD and WILL cause problems for DAI.

by boc 4y ago

whimsicalism 4y ago

... no. The price of Ethereum in USDC is irrelevant. There is no arbitrage to be had. If the price of USDC falls, you have to spend more and more USDC to mint one Dai because Dai is tied to the price of the dollar, not USDC. Explain to me how you arbitrage USDC falling out of Dai? I really encourage you to read up more on this. There are real risks that come with Dai as a stablecoin (including eth or USDC collapsing very quickly) but they are not the risks that you are identifying.

boc 4y ago
My background is in international finance, and therefore when I promise you that DAI cannot defend a virtual peg without holding large amounts of actual underlying US treasuries or physical USD, I'm only making that promise because it's been true for every currency that has ever attempted to maintain a peg with the US dollar. Maybe it's "different this time" but I sincerely doubt it. I likewise encourage you to think about this from first principles and read up on the mechanics of a currency peg. You MUST be able to quickly sell T-bills on the market swiftly to defend your currency peg, otherwise you will see your currency break from the pegged range. DAI is shifting the reserves from directly holding USD or T-bills to holding USDC instead, which isn't the same thing as USD and WILL cause problems for DAI.