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Tron’s USDD stablecoin currently losing its peg

159 points by thm 4y ago

danuker 4y ago
I've said it and I'll say it again. Stablecoins are a scam. Their issuers are centralized, and are supposed to be holding fiat for users, propping up the peg when worse comes to worst. But they can't resist the temptation of making the fractional reserve a bit too "fractional". And there is no way of auditing those reserves.
- capableweb 4y ago
  Sounds like you mean "Centralized Stablecoins are a scam"? What about Stablecoins like Dai, are those also a scam, even if they are not centralized?
  - blitzar 4y ago
    Its even worse. The peg is to dollars and the collateral is other cryptocurrencies. Works great if the collateral assets go up in value against the dollar. But if say the $3000 of ETH you had as collateral goes to say $1000 ... Its like taking out a mortgage using your locked up snowflake stock as collateral.
    - DennisP 4y ago
      Dai maintained its peg through a 94% drop in the ETH price over the course of 2018, despite being backed only by ETH at the time.
      - magicalhippo 4y ago
        So I'm not really into the crypto scene. How did Dai manage this?
        Cantinflas 4y ago
        Liquidating collateral below a certain margin, automatically and on chain
        blitzar 4y ago
        Which does what to the value of the assets in the collatteral pool ... which then in turn triggers selling of assets in the collateral pool ... which then does what to the value of assets in the collateral pool ...
        chrisco255 4y ago
        Each collateralized debt position is independent. They do not use one large pool of collateral for all DAI. Each CDP is independently liquidated as the value of the collateral drops. Can liquidations trigger price drops in ETH? Yes, and that can cause a cascade of liquidations as the collateral value falls on various CDPs. But that just wipes more debt as it cascades. MakerDAO has responsible thresholds (150%) for liquidations. It's not without risks but it's one of the good eggs.
        Tostino 4y ago
        I wish there was a visualization of the likely outcomes with the rules they have in place, and a few variations with different assumptions.
        chrisco255 4y ago
        https://maker.blockanalitica.com/vaults-at-risk-simulation/ https://maker.blockanalitica.com/vaults-at-risk-simulation/ This is a nice table for that.
        rglullis 4y ago
        There is a bit more to it, and this is the part that is covered by the MKR token: https://docs.makerdao.com/keepers/the-auctions-of-the-maker-protocol https://docs.makerdao.com/keepers/the-auctions-of-the-maker-...
      - JumpCrisscross 4y ago
        > maintained its peg through a 94% drop in the ETH price over the course of 2018, despite being backed only by ETH at the time That was a different market. We’ve experimented this with currency boards. Holding reserves in anything but your anchor currency is asking for trouble. Making public what your reserves are invites specific arbitrages. The added fun with crypto is that the monetary base of ETH is tiny compared to most reserve currencies. So the instability point for DAI is far smaller, in terms of triggering a fire sale, than for a real currency board. Side note: I guess we’re about 15 years out from 2008, the minimum term for a generational divide, and so I shouldn’t be surprised about people saying 150% collateral is pretty much safe again. Mortgages then. Ether now. Russian bonds before.
        DennisP 4y ago
        What specifically would you say was different in 2018 that made the DAI peg more workable?
        JumpCrisscross 4y ago
        > What specifically would you say was different in 2018 that made the DAI peg more workable? Rates were low. There is less dumb money now. And its quantity will predictably decline over the coming 12 to 18 months.
        blitzar 4y ago
        Total value in Dai in 2018 (it launched in dec 2017) was < USD200mil - in the period where ETH lost most of its value (Q1 2018) the total value of dai issued was ~ USD 50mil (to ETH's ~75bn market cap). Its ~ USD 7bn now (vs ETH 220bn market cap - and not the only stable coin holding eth ...). https://bravenewcoin.com/insights/maker-price-analysis-multicollateral-dai-released https://bravenewcoin.com/insights/maker-price-analysis-multi...
        JumpCrisscross 4y ago
        > USD 7bn now (vs ETH 220bn market cap 3% is a large enough fraction of value to induce fire sales at less than a 50% price drop. (I don't know precisely where below 50%. Nobody does.) Every shaky currency board in the history of pegged currencies hobbled through attacks when hard currency was easy in the absence of a solvency crisis. Let's assume Tether doesn't de-peg and Celsius's ETH loan [1] doesn't spark a run. That leaves rates. In 2018, we had relatively easy money, taper tantrums aside. Today, we don't. And hard money is only getting tighter. [1] https://www.bloomberg.com/news/articles/2022-06-13/bitcoin-sinks-to-18-month-low-as-us-inflation-impact-spreads?srnd=premium https://www.bloomberg.com/news/articles/2022-06-13/bitcoin-s...
    - chrisco255 4y ago
      It's not even worse. MakerDAO (creators of DAI) is a solid protocol. DAI is backed by collateralized debt position with automated liquidations. if the value of a CDP holders assets drop below a threshold, they get liquidated automatically. DAI was born in 2017 when ETH was $1450 and survived the drawdown to $80. If you put in $3K of ETH and borrow $1500, then your ETH collateral falls to 150% of your loan ($2275), you will get liquidated, and your collateral will be sold immediately to pay your debt. These mechanics are fully on-chain and fully automated by keepers (a liquidation can be triggered by anyone and they earn penalty fees for doing so). The system is not without risks, but those are well known to all.
      - blitzar 4y ago
        You are right it is not worse, because the protocol is known, flaws and all, and not just one guy sending his personal account 50mil every day because its a bull market and they can get away with it or cashing out whales while regular joe gets 1 cent in the dollar.
      - vlovich123 4y ago
        Something doesn't make sense to me here. If it's automatically liquidating but ALSO it's the thing propping up a bunch of cryptocurrencies, it feels like there's a crash that's inevitable here. As the value drops, it sells automatically, which drops the value further, which causes more sell-off. What's stopping that from happening?
        chrisco255 4y ago
        It's not the thing propping up crypto prices. DAI is relatively small ($6.5B mcap), DAI is also partly backed by USDC [1], which is backed by cash and US government bonds (held at Circle) so it would be extremely difficult for DAI to lose collateral backing faster than keepers could liquidate positions. Does DAI have an influence on the $1T crypto industry? Of course, but its liquidity pales in comparison to USDC, USDT, and BUSD (~$100B between them). If the market is crashing, it's doubtful DAI is the culprit (as it's actually a solid, battle-tested protocol that already lived through the Covid crash and '18 and '19 severe drawdown and many other trying market scenarios). But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market. [1] https://daistats.com/#/ https://daistats.com/#/
    - trompetenaccoun 4y ago
      So you must be against all synthetics and half the ETFs on the stock market. Interesting take and unironically I know some people who argue this with stocks too. Or fiat currency even - what is the collateral there? In the end maybe only gold can keep you safe ;)
      - blitzar 4y ago
        > So you must be against all synthetics and half the ETFs on the stock market 11% of the ETF market is synthetic, and it is effectively illegal to launch one in the US now. So it appeaers that its a) not half the ETFs and b) the regulator aggrees. ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited. The SPX etf holds the actual constituent shares 1:1 with what they are redeemable as so it is a terrible example from your side. It doesnt hold a bunch of chinese equities, or discount miami property on a punt that it will do better than their underlying asset. Stable coins have (not Dao as I agree they have a very nice fixed protocol) taken their 1:1 dollar backing, punted it on crypto, and when it went up and they were overcollateralised - paid themselves the excess personally. When crypto has gone down in value closed their eyes and eventually gone bust.
        trompetenaccoun 4y ago
        Most of the money is tracking indices, your 11% figure obviously can't be true because even most physically replicating ETFs don't 1-1 hold all of the assets they purport to hold according to the index. That's called "sampling". Fully replicating ETFs are rarer and more expensive for obvious reasons. You can see the figures for the EU here¹, it's the exact opposite of what you're saying. Fully physically replicating ETFs are in the minority. The most common category is fully synthetic and together with the physically sampling ones and more exotic categories like derivative based, non-fully physically replicating ETFs constitute almost 3/4 of the entire market. The US is going to be similar but I invite you to look it up yourself. ¹ https://www.esrb.europa.eu/pub/pdf/asc/esrb.asc190617_9_canetfscontributesystemicrisk~983ea11870.en.pdf https://www.esrb.europa.eu/pub/pdf/asc/esrb.asc190617_9_cane...
    - kolinko 4y ago
      Situations like these happened multiple times during the existence of Maker, and the peg held up nicely.
      - blitzar 4y ago
        Situations like these happened multiple times during the existence of Luna, and the peg held up nicely. Then one time it didnt.
  - chrisco255 4y ago
    No, DAI is fully collateralized. It's not without risks but they're completely auditable, all DAI is fully backed with responsible thresholds for liquidation. DAI bears more resemblance to eurodollars (debt based instruments that trade like cash overseas) than to backed stable coins. Except again DAI is fully transparent, and built on automated, immutable, audited, on-chain parameters: https://daistats.com/ https://daistats.com/
    - TacticalCoder 4y ago
      I only discovered algorithmic stablecoins recently and I'm very curious about DAI: somehow they're there since a long time and they've been fine during turbulent ETH price action. But DAI are basically very tied to USDC and it's not clear at all should Coinbase go bankrupt if they'd be using the assets backing the USDC to pay their debt or not. In a recent Coinbase report they said they may use customers' funds to pay back their debt should they go bankrupt but they said nothing about USDC. I know USDC aren't directly emitted by Coinbase but by a joint-venture Coinbase is "only" part of but still sounds scary to me. So it's not clear at all to me that DAI would still work in the face of Coinbase going belly up (COIN is at $48 before the market opens, that's -86% compared to its all time high so things aren't exactly smooth sailing and all the crypto exchanges are feeling the heat right now). So, yup, DAI is more than fully collateralized, but it's relying on Coinbase / Circle not doing anything shady with the assets backing the USDC stablecoin.
      - capableweb 4y ago
        I've been reading up on stablecoins lately, mostly Dai as it seems like the most stable of the few. This is the first time I hear it being associated/connected to Coinbase/USDC in any way. Could you share how you're making that connection? It went right past me somehow.
  - danuker 4y ago
    DAI works much better. But I wouldn't hold DAI because I'd have to lock much more of my money into it than it is worth, and keep checking for crashes in case I have to add more collateral. But it acts as a stabilizer for the Ethereum network, so power to them.
- t_mann 4y ago
  Maybe look into stablecoins a bit more closely, what you say only applies to a subset of them.
  - ceejayoz 4y ago
    Which stablecoins are verifiably - via true audits, not the attestations they all love to tout - storing their money in USD and nothing but USD?
    - t_mann 4y ago
      There exist overcollateralized decentralized stablecoins. Look into DAI as the most prominent example.
      - ceejayoz 4y ago
        Being overcollateralized doesn't save you if the value of the collateral tanks beyond your capacity to rapidly unload. edit: Tron itself bragged about their overcollateralization. https://medium.com/@usddio/usdd-upgrades-into-the-first-over-collateralized-decentralized-stablecoin-20907b81aec9 https://medium.com/@usddio/usdd-upgrades-into-the-first-over... > “Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability,” said H.E. Justin Sun, Founder of TRON. “The $10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.”
        t_mann 4y ago
        Nothing is 100% safe, but >150% overcollateralization is a rather decent buffer, even after accounting for crypto volatility. As a comparison, banks usually operate with less than 5% equity, and that's based on rather optimistic book values, as indicated by often significantly lower market capitalizations.
        4y ago
- sumy23 4y ago
  So short them?
  - charwalker 4y ago
    The market can stay irrational longer than most can stay solvent. In this case Crypto has been on a tear for a decade and legitimate criticism is shouted down by the raw gains even when rationally Crypto has minimal real world value.
  - danuker 4y ago
    Hm, that is a great idea! Had I shorted TerraUSD, I'd have multiplied my bet 111x times. Edit: But knowing WHEN to short it is crucial. Otherwise you drown in interest fees during the short.
    - bombcar 4y ago
      And with crypto you need to figure out if you'll be able to get out with your winnings on your short.
  - typon 4y ago
    What guarantee do you have that you will actually be able to execute the Buy order when these exchanges can unilaterally block trades?
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  - dragontamer 4y ago
    This "short them" argument is so terrible. Instead of spending my dollars on a speculating on shitcoins, I buy up high-quality instruments. Ex: I-Bonds are yielding 9% right now due to inflation. If you want inflation protection, there are inflation-protected securities to buy. And they're doing really well right now.
- toyg 4y ago
  One thing that cryptocurrencies have done, is highlighting how little knowledge of the Western financial structures exists, among a population of people willing to risk their shirt in the comfort of their own homes.
  - mihaic 4y ago
    And why should they know it? Just like how I can't understand the exact side-effects of every industrial chemical that I might come into contact with, I expect the government to offer some protection against these things for an unsuspecting population.
    - robbiep 4y ago
      Well, you’re not running a home chemistry lab, I suspect. Whereas a significant percentage of crypto enthusiasts believe they’re inventing the future of money, without the slightest idea of the protections the government offers their deposits in the status quo - and happily leaving this for the decidedly less robust protections of a nacent industry that has developed a name for scams and people losing their shirts
    - rchaud 4y ago
      They should know it, because there is a much larger element of "DYOR" (Do your own research) thinking among DeFi users than among regular people putting their money into trad-Fi brokers that are heavily regulated. In deFi, information asymmetry is a feature, not a bug.
      - NotSammyHagar 4y ago
        People keep saying that, but billions more will be lost this week as the next crypto exchanges fail. Most people were not doing research. Nothing paying 20% returns will last. Yet millions of people put their money into investments like this.
    - deleted 4y ago
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trompetenaccoun 4y ago
Good.
jdpedrie 4y ago
What’s the situation these days with GUSD? I have single-digit thousands in an interest account (not defi) in that currency and it seems to be holding steady. Any reason I should be concerned, aside from the custodian company going belly up?
- shawabawa3 4y ago
  GUSD is pretty legit as far as stablecoins go As for whether your CeFI interest account is safe... Well, I hope it isn't Celcius.
- moconnor 4y ago
  These interest yields are unsustainable even for GUSD. Take your money out now ahead of the rush.
- colechristensen 4y ago
  In this climate I wouldn’t put any money in an interest bearing crypto organization (that i wasn’t willing to lose). They’re very poorly regulated and liable to be doing stupid things that will lose you all your money. The only thing you have to go on is repetition and hope, the rewards are probably not worth the risk.
- iskander 4y ago
  GUSD seems to be about as safe as USDC (1:1 backing in banks) but careful where you try to earn interest on them. Gemini Earn hands over your GUSD to Genesis Trading, with no guarantee you get anything back if they implode. DeFi yield in this case is actually safer on a platform like Aave but with safety comes low APY (~1%).
jpgvm 4y ago
Stable at zero apparently.
j_walter 4y ago
Please...it's off by 1%. Most "high quality" money market funds aren't at 100% funded and no one is freaking out over that.
aeturnum 4y ago
People in the HNews community have been pushing for the ability for unaccredited investors to be able to put money into early-stage startups for years. I think the situation with crypto-currency* is a preview of the upsides and downsides of what that would look like. Now - crypto is worse because of the constant theft - but even without the crime you can clearly see the upsides and the downsides. The upside is that anyone can get in on the "ground floor" of these projects and crypto currency - for all its flaws - does do a good job of securely transferring 'ownership.' Fake crypto is not, as far as I know, a problem. The downside is obvious for all to see: it's difficult to figure out if a technically complicated product is worth investing in. It's doubly difficult when the people working on those projects will get an immediate monetary reward for attracting investment. I do think it's unfair that only the rich can bet on early-stage startups, but it's impossible for me to ignore the anecdotes of naive investors losing their savings on poor crypto investments. I'm not sure what a better system would look like - perhaps one where investments are taxed to create an insurance fund. Though the downsides to that are obvious as well.
- sjansen 4y ago
  > Fake crypto is not, as far as I know, a problem. As it happens, crypto-less cryptocurrency is very much possible as demonstrated by the OneCoin scam: https://en.wikipedia.org/wiki/OneCoin https://en.wikipedia.org/wiki/OneCoin https://www.fool.com/the-ascent/cryptocurrency/articles/what-we-can-learn-from-onecoin-cryptos-biggest-scam/ https://www.fool.com/the-ascent/cryptocurrency/articles/what...
  - aeturnum 4y ago
    There are lots of projects that describe themselves as a "cryptocurrency" that are lying by some definition! That, imo, goes back to the difficulty in assessing the technical rigor of the projects. I more meant that I do not have the impression that people selling fake bitcoins (or eth or whatever other coins people buy) is a problem. If you want to buy a bitcoin, it is easy to do that in a verifiable way.

159 points by thm 4y ago

I've said it and I'll say it again. Stablecoins are a scam. Their issuers are centralized, and are supposed to be holding fiat for users, propping up the peg when worse comes to worst. But they can't resist the temptation of making the fractional reserve a bit too "fractional". And there is no way of auditing those reserves.

capableweb 4y ago
Sounds like you mean "Centralized Stablecoins are a scam"? What about Stablecoins like Dai, are those also a scam, even if they are not centralized?
- blitzar 4y ago
  Its even worse. The peg is to dollars and the collateral is other cryptocurrencies. Works great if the collateral assets go up in value against the dollar. But if say the $3000 of ETH you had as collateral goes to say $1000 ... Its like taking out a mortgage using your locked up snowflake stock as collateral.
  - DennisP 4y ago
    Dai maintained its peg through a 94% drop in the ETH price over the course of 2018, despite being backed only by ETH at the time.
    - magicalhippo 4y ago
      So I'm not really into the crypto scene. How did Dai manage this?
      - Cantinflas 4y ago
        Liquidating collateral below a certain margin, automatically and on chain
        blitzar 4y ago
        Which does what to the value of the assets in the collatteral pool ... which then in turn triggers selling of assets in the collateral pool ... which then does what to the value of assets in the collateral pool ...
        chrisco255 4y ago
        Each collateralized debt position is independent. They do not use one large pool of collateral for all DAI. Each CDP is independently liquidated as the value of the collateral drops. Can liquidations trigger price drops in ETH? Yes, and that can cause a cascade of liquidations as the collateral value falls on various CDPs. But that just wipes more debt as it cascades. MakerDAO has responsible thresholds (150%) for liquidations. It's not without risks but it's one of the good eggs.
        Tostino 4y ago
        I wish there was a visualization of the likely outcomes with the rules they have in place, and a few variations with different assumptions.
        chrisco255 4y ago
        https://maker.blockanalitica.com/vaults-at-risk-simulation/ https://maker.blockanalitica.com/vaults-at-risk-simulation/ This is a nice table for that.
        rglullis 4y ago
        There is a bit more to it, and this is the part that is covered by the MKR token: https://docs.makerdao.com/keepers/the-auctions-of-the-maker-protocol https://docs.makerdao.com/keepers/the-auctions-of-the-maker-...
    - JumpCrisscross 4y ago
      > maintained its peg through a 94% drop in the ETH price over the course of 2018, despite being backed only by ETH at the time That was a different market. We’ve experimented this with currency boards. Holding reserves in anything but your anchor currency is asking for trouble. Making public what your reserves are invites specific arbitrages. The added fun with crypto is that the monetary base of ETH is tiny compared to most reserve currencies. So the instability point for DAI is far smaller, in terms of triggering a fire sale, than for a real currency board. Side note: I guess we’re about 15 years out from 2008, the minimum term for a generational divide, and so I shouldn’t be surprised about people saying 150% collateral is pretty much safe again. Mortgages then. Ether now. Russian bonds before.
      - DennisP 4y ago
        What specifically would you say was different in 2018 that made the DAI peg more workable?
        JumpCrisscross 4y ago
        > What specifically would you say was different in 2018 that made the DAI peg more workable? Rates were low. There is less dumb money now. And its quantity will predictably decline over the coming 12 to 18 months.
        blitzar 4y ago
        Total value in Dai in 2018 (it launched in dec 2017) was < USD200mil - in the period where ETH lost most of its value (Q1 2018) the total value of dai issued was ~ USD 50mil (to ETH's ~75bn market cap). Its ~ USD 7bn now (vs ETH 220bn market cap - and not the only stable coin holding eth ...). https://bravenewcoin.com/insights/maker-price-analysis-multicollateral-dai-released https://bravenewcoin.com/insights/maker-price-analysis-multi...
        JumpCrisscross 4y ago
        > USD 7bn now (vs ETH 220bn market cap 3% is a large enough fraction of value to induce fire sales at less than a 50% price drop. (I don't know precisely where below 50%. Nobody does.) Every shaky currency board in the history of pegged currencies hobbled through attacks when hard currency was easy in the absence of a solvency crisis. Let's assume Tether doesn't de-peg and Celsius's ETH loan [1] doesn't spark a run. That leaves rates. In 2018, we had relatively easy money, taper tantrums aside. Today, we don't. And hard money is only getting tighter. [1] https://www.bloomberg.com/news/articles/2022-06-13/bitcoin-sinks-to-18-month-low-as-us-inflation-impact-spreads?srnd=premium https://www.bloomberg.com/news/articles/2022-06-13/bitcoin-s...
  - chrisco255 4y ago
    It's not even worse. MakerDAO (creators of DAI) is a solid protocol. DAI is backed by collateralized debt position with automated liquidations. if the value of a CDP holders assets drop below a threshold, they get liquidated automatically. DAI was born in 2017 when ETH was $1450 and survived the drawdown to $80. If you put in $3K of ETH and borrow $1500, then your ETH collateral falls to 150% of your loan ($2275), you will get liquidated, and your collateral will be sold immediately to pay your debt. These mechanics are fully on-chain and fully automated by keepers (a liquidation can be triggered by anyone and they earn penalty fees for doing so). The system is not without risks, but those are well known to all.
    - blitzar 4y ago
      You are right it is not worse, because the protocol is known, flaws and all, and not just one guy sending his personal account 50mil every day because its a bull market and they can get away with it or cashing out whales while regular joe gets 1 cent in the dollar.
    - vlovich123 4y ago
      Something doesn't make sense to me here. If it's automatically liquidating but ALSO it's the thing propping up a bunch of cryptocurrencies, it feels like there's a crash that's inevitable here. As the value drops, it sells automatically, which drops the value further, which causes more sell-off. What's stopping that from happening?
      - chrisco255 4y ago
        It's not the thing propping up crypto prices. DAI is relatively small ($6.5B mcap), DAI is also partly backed by USDC [1], which is backed by cash and US government bonds (held at Circle) so it would be extremely difficult for DAI to lose collateral backing faster than keepers could liquidate positions. Does DAI have an influence on the $1T crypto industry? Of course, but its liquidity pales in comparison to USDC, USDT, and BUSD (~$100B between them). If the market is crashing, it's doubtful DAI is the culprit (as it's actually a solid, battle-tested protocol that already lived through the Covid crash and '18 and '19 severe drawdown and many other trying market scenarios). But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market. [1] https://daistats.com/#/ https://daistats.com/#/
  - trompetenaccoun 4y ago
    So you must be against all synthetics and half the ETFs on the stock market. Interesting take and unironically I know some people who argue this with stocks too. Or fiat currency even - what is the collateral there? In the end maybe only gold can keep you safe ;)
    - blitzar 4y ago
      > So you must be against all synthetics and half the ETFs on the stock market 11% of the ETF market is synthetic, and it is effectively illegal to launch one in the US now. So it appeaers that its a) not half the ETFs and b) the regulator aggrees. ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited. The SPX etf holds the actual constituent shares 1:1 with what they are redeemable as so it is a terrible example from your side. It doesnt hold a bunch of chinese equities, or discount miami property on a punt that it will do better than their underlying asset. Stable coins have (not Dao as I agree they have a very nice fixed protocol) taken their 1:1 dollar backing, punted it on crypto, and when it went up and they were overcollateralised - paid themselves the excess personally. When crypto has gone down in value closed their eyes and eventually gone bust.
      - trompetenaccoun 4y ago
        Most of the money is tracking indices, your 11% figure obviously can't be true because even most physically replicating ETFs don't 1-1 hold all of the assets they purport to hold according to the index. That's called "sampling". Fully replicating ETFs are rarer and more expensive for obvious reasons. You can see the figures for the EU here¹, it's the exact opposite of what you're saying. Fully physically replicating ETFs are in the minority. The most common category is fully synthetic and together with the physically sampling ones and more exotic categories like derivative based, non-fully physically replicating ETFs constitute almost 3/4 of the entire market. The US is going to be similar but I invite you to look it up yourself. ¹ https://www.esrb.europa.eu/pub/pdf/asc/esrb.asc190617_9_canetfscontributesystemicrisk~983ea11870.en.pdf https://www.esrb.europa.eu/pub/pdf/asc/esrb.asc190617_9_cane...
  - kolinko 4y ago
    Situations like these happened multiple times during the existence of Maker, and the peg held up nicely.
    - blitzar 4y ago
      Situations like these happened multiple times during the existence of Luna, and the peg held up nicely. Then one time it didnt.
- chrisco255 4y ago
  No, DAI is fully collateralized. It's not without risks but they're completely auditable, all DAI is fully backed with responsible thresholds for liquidation. DAI bears more resemblance to eurodollars (debt based instruments that trade like cash overseas) than to backed stable coins. Except again DAI is fully transparent, and built on automated, immutable, audited, on-chain parameters: https://daistats.com/ https://daistats.com/
  - TacticalCoder 4y ago
    I only discovered algorithmic stablecoins recently and I'm very curious about DAI: somehow they're there since a long time and they've been fine during turbulent ETH price action. But DAI are basically very tied to USDC and it's not clear at all should Coinbase go bankrupt if they'd be using the assets backing the USDC to pay their debt or not. In a recent Coinbase report they said they may use customers' funds to pay back their debt should they go bankrupt but they said nothing about USDC. I know USDC aren't directly emitted by Coinbase but by a joint-venture Coinbase is "only" part of but still sounds scary to me. So it's not clear at all to me that DAI would still work in the face of Coinbase going belly up (COIN is at $48 before the market opens, that's -86% compared to its all time high so things aren't exactly smooth sailing and all the crypto exchanges are feeling the heat right now). So, yup, DAI is more than fully collateralized, but it's relying on Coinbase / Circle not doing anything shady with the assets backing the USDC stablecoin.
    - capableweb 4y ago
      I've been reading up on stablecoins lately, mostly Dai as it seems like the most stable of the few. This is the first time I hear it being associated/connected to Coinbase/USDC in any way. Could you share how you're making that connection? It went right past me somehow.
- danuker 4y ago
  DAI works much better. But I wouldn't hold DAI because I'd have to lock much more of my money into it than it is worth, and keep checking for crashes in case I have to add more collateral. But it acts as a stabilizer for the Ethereum network, so power to them.
t_mann 4y ago
Maybe look into stablecoins a bit more closely, what you say only applies to a subset of them.
- ceejayoz 4y ago
  Which stablecoins are verifiably - via true audits, not the attestations they all love to tout - storing their money in USD and nothing but USD?
  - t_mann 4y ago
    There exist overcollateralized decentralized stablecoins. Look into DAI as the most prominent example.
    - ceejayoz 4y ago
      Being overcollateralized doesn't save you if the value of the collateral tanks beyond your capacity to rapidly unload. edit: Tron itself bragged about their overcollateralization. https://medium.com/@usddio/usdd-upgrades-into-the-first-over-collateralized-decentralized-stablecoin-20907b81aec9 https://medium.com/@usddio/usdd-upgrades-into-the-first-over... > “Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability,” said H.E. Justin Sun, Founder of TRON. “The $10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.”
      - t_mann 4y ago
        Nothing is 100% safe, but >150% overcollateralization is a rather decent buffer, even after accounting for crypto volatility. As a comparison, banks usually operate with less than 5% equity, and that's based on rather optimistic book values, as indicated by often significantly lower market capitalizations.
        4y ago
sumy23 4y ago
So short them?
- charwalker 4y ago
  The market can stay irrational longer than most can stay solvent. In this case Crypto has been on a tear for a decade and legitimate criticism is shouted down by the raw gains even when rationally Crypto has minimal real world value.
- danuker 4y ago
  Hm, that is a great idea! Had I shorted TerraUSD, I'd have multiplied my bet 111x times. Edit: But knowing WHEN to short it is crucial. Otherwise you drown in interest fees during the short.
  - bombcar 4y ago
    And with crypto you need to figure out if you'll be able to get out with your winnings on your short.
- typon 4y ago
  What guarantee do you have that you will actually be able to execute the Buy order when these exchanges can unilaterally block trades?
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- dragontamer 4y ago
  This "short them" argument is so terrible. Instead of spending my dollars on a speculating on shitcoins, I buy up high-quality instruments. Ex: I-Bonds are yielding 9% right now due to inflation. If you want inflation protection, there are inflation-protected securities to buy. And they're doing really well right now.
toyg 4y ago
One thing that cryptocurrencies have done, is highlighting how little knowledge of the Western financial structures exists, among a population of people willing to risk their shirt in the comfort of their own homes.
- mihaic 4y ago
  And why should they know it? Just like how I can't understand the exact side-effects of every industrial chemical that I might come into contact with, I expect the government to offer some protection against these things for an unsuspecting population.
  - robbiep 4y ago
    Well, you’re not running a home chemistry lab, I suspect. Whereas a significant percentage of crypto enthusiasts believe they’re inventing the future of money, without the slightest idea of the protections the government offers their deposits in the status quo - and happily leaving this for the decidedly less robust protections of a nacent industry that has developed a name for scams and people losing their shirts
  - rchaud 4y ago
    They should know it, because there is a much larger element of "DYOR" (Do your own research) thinking among DeFi users than among regular people putting their money into trad-Fi brokers that are heavily regulated. In deFi, information asymmetry is a feature, not a bug.
    - NotSammyHagar 4y ago
      People keep saying that, but billions more will be lost this week as the next crypto exchanges fail. Most people were not doing research. Nothing paying 20% returns will last. Yet millions of people put their money into investments like this.
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trompetenaccoun 4y ago

Good.

jdpedrie 4y ago

What’s the situation these days with GUSD? I have single-digit thousands in an interest account (not defi) in that currency and it seems to be holding steady. Any reason I should be concerned, aside from the custodian company going belly up?

shawabawa3 4y ago
GUSD is pretty legit as far as stablecoins go As for whether your CeFI interest account is safe... Well, I hope it isn't Celcius.
moconnor 4y ago
These interest yields are unsustainable even for GUSD. Take your money out now ahead of the rush.
colechristensen 4y ago
In this climate I wouldn’t put any money in an interest bearing crypto organization (that i wasn’t willing to lose). They’re very poorly regulated and liable to be doing stupid things that will lose you all your money. The only thing you have to go on is repetition and hope, the rewards are probably not worth the risk.
iskander 4y ago
GUSD seems to be about as safe as USDC (1:1 backing in banks) but careful where you try to earn interest on them. Gemini Earn hands over your GUSD to Genesis Trading, with no guarantee you get anything back if they implode. DeFi yield in this case is actually safer on a platform like Aave but with safety comes low APY (~1%).

jpgvm 4y ago

Stable at zero apparently.

j_walter 4y ago

Please...it's off by 1%. Most "high quality" money market funds aren't at 100% funded and no one is freaking out over that.

aeturnum 4y ago

People in the HNews community have been pushing for the ability for unaccredited investors to be able to put money into early-stage startups for years. I think the situation with crypto-currency* is a preview of the upsides and downsides of what that would look like. Now - crypto is worse because of the constant theft - but even without the crime you can clearly see the upsides and the downsides. The upside is that anyone can get in on the "ground floor" of these projects and crypto currency - for all its flaws - does do a good job of securely transferring 'ownership.' Fake crypto is not, as far as I know, a problem. The downside is obvious for all to see: it's difficult to figure out if a technically complicated product is worth investing in. It's doubly difficult when the people working on those projects will get an immediate monetary reward for attracting investment. I do think it's unfair that only the rich can bet on early-stage startups, but it's impossible for me to ignore the anecdotes of naive investors losing their savings on poor crypto investments. I'm not sure what a better system would look like - perhaps one where investments are taxed to create an insurance fund. Though the downsides to that are obvious as well.

sjansen 4y ago
> Fake crypto is not, as far as I know, a problem. As it happens, crypto-less cryptocurrency is very much possible as demonstrated by the OneCoin scam: https://en.wikipedia.org/wiki/OneCoin https://en.wikipedia.org/wiki/OneCoin https://www.fool.com/the-ascent/cryptocurrency/articles/what-we-can-learn-from-onecoin-cryptos-biggest-scam/ https://www.fool.com/the-ascent/cryptocurrency/articles/what...
- aeturnum 4y ago
  There are lots of projects that describe themselves as a "cryptocurrency" that are lying by some definition! That, imo, goes back to the difficulty in assessing the technical rigor of the projects. I more meant that I do not have the impression that people selling fake bitcoins (or eth or whatever other coins people buy) is a problem. If you want to buy a bitcoin, it is easy to do that in a verifiable way.