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Do you really think that Circle and Coinbase are spending USDC reserves on their own behalf? Do you really have so little faith in the US financial regulators

Do you really think that Circle and Coinbase are spending USDC reserves on their own behalf? Do you really have so little faith in the US financial regulators that you think they would allow publicly traded companies to steal their customers' money in such an obvious fashion? And what do you mean by "much like traditional banks in fact - there is no uncertainty that eventually they will go bankrupt"? Are you saying that all banks eventually go bankrupt? When should we expect Barclays to go bankrupt, now after having existed for 300 years? When should we expect Bank of New York to go bankrupt, now after having survived for 250 years?

jahewson 4y ago
Surely the implication is not that they are spending them but behaving like banks and lending out the underlying capital.
- legutierr 4y ago
  But that’s not how banks work. They don’t lend out the capital of depositors. Rather, when they lend money, they record a receivable from the borrower, and at the same time credit the borrower’s account at the bank. Bank lending creates money.
  - lupire 4y ago
    Yes, things are mostly virtualized, but if what you say were true than then it would be impossible for a bank run to collapse a bank. Money in your account a debt the bank owes you. It's not money you can spend until after you withdraw it and the bank has liquidity to honor the withdrawal. https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Fractional-reserve_banking
- fsckboy 4y ago
  banks lend out capital because the return interest more than makes up for risk (not least because they pool risk)
roenxi 4y ago
I suppose I could just write "Yes". USDC will probably change their policy somehow to enable fractional reserves at some point since the incentives to do so in the future are huge. Also a company surviving for a long time is not an especially solid predictor of future lifespan. The list of financial institutions founded at the same time that didn't survive is so large nobody bothers to keep track and the management today is (in the style of the ship of Theseus) completely different from the historical decision makers.
- rglullis 4y ago
  Coinbase makes more money by being a trustworthy exchange than by skimming the funds from the USDC reserve.
  - roenxi 4y ago
    There is no way any institution powered by humans can be trusted to sit on a couple of billion (or trillion) dollars in liquid assets and leave them alone for long periods of time. Are they trustworthy today? Maybe. 10 years? Maybe. 30? No. 100? Very emphatic no. Some bright spark will notice that they don't need all these untouched reserves and will do something with them, increasing the risk and, eventually, getting hit with a bank run.
    - rglullis 4y ago
      If in 10 years from now we are still as dependent from the USD as we are today, I will safely consider all of crypto a failed experiment. There should be by then other mechanisms to get liquidity and that can represent the economic output of the world. It could be a basket of CBDCs from multiple countries, or tokenized (and legally standing) representations of bonds, titles and property. But the current system is far from the final design.
    - edzillion 4y ago
      There's no gold in fort knox
    - kasey_junk 4y ago

jahewson 4y ago

Surely the implication is not that they are spending them but behaving like banks and lending out the underlying capital.

legutierr 4y ago
But that’s not how banks work. They don’t lend out the capital of depositors. Rather, when they lend money, they record a receivable from the borrower, and at the same time credit the borrower’s account at the bank. Bank lending creates money.
- lupire 4y ago
  Yes, things are mostly virtualized, but if what you say were true than then it would be impossible for a bank run to collapse a bank. Money in your account a debt the bank owes you. It's not money you can spend until after you withdraw it and the bank has liquidity to honor the withdrawal. https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Fractional-reserve_banking
fsckboy 4y ago
banks lend out capital because the return interest more than makes up for risk (not least because they pool risk)

roenxi 4y ago

I suppose I could just write "Yes". USDC will probably change their policy somehow to enable fractional reserves at some point since the incentives to do so in the future are huge. Also a company surviving for a long time is not an especially solid predictor of future lifespan. The list of financial institutions founded at the same time that didn't survive is so large nobody bothers to keep track and the management today is (in the style of the ship of Theseus) completely different from the historical decision makers.

rglullis 4y ago
Coinbase makes more money by being a trustworthy exchange than by skimming the funds from the USDC reserve.
- roenxi 4y ago
  There is no way any institution powered by humans can be trusted to sit on a couple of billion (or trillion) dollars in liquid assets and leave them alone for long periods of time. Are they trustworthy today? Maybe. 10 years? Maybe. 30? No. 100? Very emphatic no. Some bright spark will notice that they don't need all these untouched reserves and will do something with them, increasing the risk and, eventually, getting hit with a bank run.
  - rglullis 4y ago
    If in 10 years from now we are still as dependent from the USD as we are today, I will safely consider all of crypto a failed experiment. There should be by then other mechanisms to get liquidity and that can represent the economic output of the world. It could be a basket of CBDCs from multiple countries, or tokenized (and legally standing) representations of bonds, titles and property. But the current system is far from the final design.
  - edzillion 4y ago
    There's no gold in fort knox
  - kasey_junk 4y ago