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These mightier institutions were trying to defend a peg while dealing with fractional reserve and/or a deficit in the trading sheet. A stabletoken like USDC is

These mightier institutions were trying to defend a peg while dealing with fractional reserve and/or a deficit in the trading sheet. A stabletoken like USDC is not any of that. It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money.

jcranmer 4y ago
> It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money. Should be, perhaps. But it does not appear to be. Tether's statements indicate that they are very much in the fractional reserve game, and while Circle has removed the asset breakdown from their attestations, the last one I found that had it indicated that they were also playing the fractional reserve game. Given that the two largest stablecoins have admitted to playing the fractional reserve game, are you willing to admit that the peg turn out to only be as solid as, say, the GBP/ESM peg was?
- rglullis 4y ago
  If you have any attestation from USDC saying that they are not holding enough USD or commercial paper to back their reserves, you can make a lot of money by a combination of (a) legal action against them (which is easier to do than compared with Tether) and (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them.
  - jcranmer 4y ago
    I said USDC has said that is using fractional reserves. I did not say that it is insolvent. (That said, I do believe that USDC and USDT are likely to be insolvent, primarily on the basis that assets equaling 100% of liabilities to three significant figures is suspiciously precise. More likely for USDT, as their attestation also notes that they're using non-standard accounting practices, although USDC gets a ding for not providing any breakdowns.) > (a) legal action against them (which is easier to do than compared with Tether) What standing has anyone to sue USDC right now? You need to have suffered damages, and so long as the peg has maintained, damages have not yet occurred. > (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them. How do you short them? You'd need to acquire likely >10 billion of USDC to sell without providing 10 billion of liquid USD to Circle or any of its confederates that they could use against you.
    - rglullis 4y ago
      > I said USDC has said that is using fractional reserves. I did not say that it is insolvent. It doesn't matter. USDC promises 1:1 backing of dollars for cash or "cash-like instruments". If they are not able to not attest this and they minted more USDC than they should, they are breaching this promise.
      - jcranmer 4y ago
        The asset classes they have previously admitted to investing in are similar asset classes to those that money market funds have invested in, and historically, that has not proven sufficient to always maintain a 1:1 backing. And also, I believe, not inconsistent with a description of "cash-like instruments" (at least insofar as any legal liability could result). Of course, the more you compare stablecoins to money market funds, the more you wonder why anyone should prefer the former over the latter: stablecoins appear to be a less regulated, more opaque version of money market funds, with more meager rewards and a richer repertoire of liars and scam artists.
        rglullis 4y ago
        Are you sure you are talking about Circle (USDC) and not Tether (USDT)? Let's not confuse one for the other, because I already said right at the top that Tether is not to be trusted.

jcranmer 4y ago

> It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money. Should be, perhaps. But it does not appear to be. Tether's statements indicate that they are very much in the fractional reserve game, and while Circle has removed the asset breakdown from their attestations, the last one I found that had it indicated that they were also playing the fractional reserve game. Given that the two largest stablecoins have admitted to playing the fractional reserve game, are you willing to admit that the peg turn out to only be as solid as, say, the GBP/ESM peg was?

rglullis 4y ago
If you have any attestation from USDC saying that they are not holding enough USD or commercial paper to back their reserves, you can make a lot of money by a combination of (a) legal action against them (which is easier to do than compared with Tether) and (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them.
- jcranmer 4y ago
  I said USDC has said that is using fractional reserves. I did not say that it is insolvent. (That said, I do believe that USDC and USDT are likely to be insolvent, primarily on the basis that assets equaling 100% of liabilities to three significant figures is suspiciously precise. More likely for USDT, as their attestation also notes that they're using non-standard accounting practices, although USDC gets a ding for not providing any breakdowns.) > (a) legal action against them (which is easier to do than compared with Tether) What standing has anyone to sue USDC right now? You need to have suffered damages, and so long as the peg has maintained, damages have not yet occurred. > (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them. How do you short them? You'd need to acquire likely >10 billion of USDC to sell without providing 10 billion of liquid USD to Circle or any of its confederates that they could use against you.
  - rglullis 4y ago
    > I said USDC has said that is using fractional reserves. I did not say that it is insolvent. It doesn't matter. USDC promises 1:1 backing of dollars for cash or "cash-like instruments". If they are not able to not attest this and they minted more USDC than they should, they are breaching this promise.
    - jcranmer 4y ago
      The asset classes they have previously admitted to investing in are similar asset classes to those that money market funds have invested in, and historically, that has not proven sufficient to always maintain a 1:1 backing. And also, I believe, not inconsistent with a description of "cash-like instruments" (at least insofar as any legal liability could result). Of course, the more you compare stablecoins to money market funds, the more you wonder why anyone should prefer the former over the latter: stablecoins appear to be a less regulated, more opaque version of money market funds, with more meager rewards and a richer repertoire of liars and scam artists.
      - rglullis 4y ago
        Are you sure you are talking about Circle (USDC) and not Tether (USDT)? Let's not confuse one for the other, because I already said right at the top that Tether is not to be trusted.