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Sorry for hijacking this thread, but can somebody explain like I'm five, what's the point of algorithmic stablecoins? My understanding of the term 'stablecoin'

Sorry for hijacking this thread, but can somebody explain like I'm five, what's the point of algorithmic stablecoins? My understanding of the term 'stablecoin' means that it is a crypto 'proxy' to some fiat currency, typically US dollar, just to avoid the actual conversion between crypto and fiat (because of taxes etc). So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? You give me a dollar, I mint you a coin. Somebody sends the coin back, I return them the dollar.

sanderjd 4y ago
This is pretty much what USDC is.
xwdv 4y ago
Because you can make a lot of money keeping a fraction of the dollars you get in cash and keeping the rest invested in treasuries. Eventually you will get tired of the work and costs involved in maintaining your dumbass coin in perpetuity for no benefit.
logifail 4y ago
> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? Q: Where would you actually keep the dollars?
tylergetsay 4y ago
It costs (a lot) of money to move dollars between people; how would I aquire DumbCoin without physically traveling to you and buying it?
retube 4y ago
There is - this is exactly what Tether is. It's the largest, most liquid of the stable coins with someone like $80bn of coins in circulation [1]. Binance and Coinbase also have their own as well which are also pretty big. As far as algorithmic stable coins are concerned, I have no idea what the point is. Largely experimental as far as i can tell (but pretty much guaranteed to fail given how they work) 1. In fact so big now that cash managers and corporate treasurers keep an eye on Tether as they have a material impact on the bills and CP markets.
- shkkmo 4y ago
  Except that Tether has no legal requirement to allow you to redeem their coins, aren't 100% backed by USD, and has a history of lieing about their backing.
  - retube 4y ago
    Sure, they're unregulated with little or no oversight and could be spunking it all tropical islands, but that's the theory :)
    - TrapLord_Rhodo 4y ago
      That's the point of an algo stablecoin. I can see the code and have direct oversight.
lima 4y ago
> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? Those exist (like USDC), but they rely on a trusted entity holding the reserves.
- spiralx 4y ago
  USDC is exactly as unaudited as USDT, they've just flown under the radar so far.
  - lima 4y ago
    Exactly.
Iwan-Zotow 4y ago
It is another fiat currency backed by dollar, not gold. With only fractional reservation.

sanderjd 4y ago

This is pretty much what USDC is.

xwdv 4y ago

Because you can make a lot of money keeping a fraction of the dollars you get in cash and keeping the rest invested in treasuries. Eventually you will get tired of the work and costs involved in maintaining your dumbass coin in perpetuity for no benefit.

logifail 4y ago

> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? Q: Where would you actually keep the dollars?

tylergetsay 4y ago

It costs (a lot) of money to move dollars between people; how would I aquire DumbCoin without physically traveling to you and buying it?

retube 4y ago

There is - this is exactly what Tether is. It's the largest, most liquid of the stable coins with someone like $80bn of coins in circulation [1]. Binance and Coinbase also have their own as well which are also pretty big. As far as algorithmic stable coins are concerned, I have no idea what the point is. Largely experimental as far as i can tell (but pretty much guaranteed to fail given how they work) 1. In fact so big now that cash managers and corporate treasurers keep an eye on Tether as they have a material impact on the bills and CP markets.

shkkmo 4y ago
Except that Tether has no legal requirement to allow you to redeem their coins, aren't 100% backed by USD, and has a history of lieing about their backing.
- retube 4y ago
  Sure, they're unregulated with little or no oversight and could be spunking it all tropical islands, but that's the theory :)
  - TrapLord_Rhodo 4y ago
    That's the point of an algo stablecoin. I can see the code and have direct oversight.

lima 4y ago

> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? Those exist (like USDC), but they rely on a trusted entity holding the reserves.

spiralx 4y ago
USDC is exactly as unaudited as USDT, they've just flown under the radar so far.
- lima 4y ago
  Exactly.

Iwan-Zotow 4y ago

It is another fiat currency backed by dollar, not gold. With only fractional reservation.