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Can someone please explain the point of a stablecoin? from the outside it looks like an unregulated, impossibly opaque fractional reserve system. Its pegged t

Can someone please explain the point of a stablecoin? from the outside it looks like an unregulated, impossibly opaque fractional reserve system. Its pegged to the dollar, or what ever. But none of them are resilient against a run, well, not and be profitable.

CodeArtisan 4y ago
IIRC you can use them to circumvent USA gambling laws.
democracy 4y ago
Because blockchain, bitcoin and cryptography! You just don't lose money with bitcoin. It's mathematically impossible. Even if you lose money with bitcoin - it's good for bitcoin. It's free currency. Democracy. Bank the unbanked.
ex3ndr 4y ago
Did you ever have issues sending money overseas? It is almost always painful and even sometimes money lost. Transact USDC/USDT is so much easier than anything else on global scale.
seanhunter 4y ago
Two use cases for businesses that have nothing to do with avoiding KYC or currency controls etc which other people have mentioned 1)say you are a business who wants to accept crypto but doesn't want the volatility associated with holding crypto 2)...or say you want to sell something for either dollars or crypto and don't want to have to reprice your product every time USD/ETH moves In either case offering a price in USDC for example would meet your needs. Your customers can pay in crypto but what you get is essentially the same as dollars (excluding transaction fees), so goods can be priced the same in crypto and cash and you're not exposed to crypto volatility on your holdings for the most part. So if you have a use case for businesses to price things in a stablecoin, then it follows that there are use cases for people to get stablecoin to use and therefore usecases for creating stablecoins, exchanging them for other crypto etc.
vkou 4y ago
It's possible for something like Tether to be resilient against a run, if the coin issuer redeems at ~0.999 to 1. The problem is not one of theoretical possibility, the problem is one of perverse incentives. Tether's operators have no reason not to go to Vegas and put all that money on a coin flip. Heads they win, tails their 'clients' lose. They'd be idiots to not do something like that.
deleted 4y ago
[deleted]
colinmhayes 4y ago
Commercial banks experience runs when they write illiquid loans that they can't sell at cost as fast as people cash out. If they never write loans or only write completely liquid loans that never default they will never get run. Tether could park all their assets in short term government debt and they would never have a problem, but they want to get higher returns.
- deleted 4y ago
  [deleted]
wmf 4y ago
The point is (1) to make trades denominated in USD when you're banned from actual USD and (2) to be able to transfer USD quickly between different crypto exchanges.
matthewdgreen 4y ago
If the issuer is well-regulated and the funds are kept in a regulated bank (or held in US Treasuries) then what you're doing is "tokenizing" existing banking infrastructure. This makes it easier for participants to quickly settle transactions and move fiat balances, without having to work through slow ACH-type networks or place major trust in their counterparties. There are still some risks (company will get hacked, executives will go rogue, banks won't be prepared for a major run) but these are fundamentally the sort of risks that the US banking industry has some experience with. These risks have nothing to do with what's going on at Tether: they don't seem to be regulated at all.
rossdavidh 4y ago
Q: "Can someone please explain the point of a stablecoin?" A: "...an unregulated, impossibly opaque fractional reserve system." Answering your own questions, well done. :)
kotlin2 4y ago
A stablecoin acts as a pegged currency, which is useful because the exchange rate between non-stable crypto coins and USD is highly volatile. For instance, let's say I wanted to implement something akin to a bond on a blockchain. It would be nice to have that smart contract pay out in a stablecoin to avoid any currency exchange risk.
smoovb 4y ago
Worldwide access to USD.
- 908087 4y ago
namdnay 4y ago
there are a lot of countries in which converting crypto to fiat is a taxable event, whereas converting from one type of crypto to another isn't.
- RustyRussell 4y ago
  Really? That seems weird to me. Do you know of one?
  - namdnay 4y ago
    France for example. As long as it’s unicorn money it’s not taxable, but if you convert to real money or buy goods and services, that income is taxed

CodeArtisan 4y ago

IIRC you can use them to circumvent USA gambling laws.

democracy 4y ago

Because blockchain, bitcoin and cryptography! You just don't lose money with bitcoin. It's mathematically impossible. Even if you lose money with bitcoin - it's good for bitcoin. It's free currency. Democracy. Bank the unbanked.

ex3ndr 4y ago

Did you ever have issues sending money overseas? It is almost always painful and even sometimes money lost. Transact USDC/USDT is so much easier than anything else on global scale.

seanhunter 4y ago

Two use cases for businesses that have nothing to do with avoiding KYC or currency controls etc which other people have mentioned 1)say you are a business who wants to accept crypto but doesn't want the volatility associated with holding crypto 2)...or say you want to sell something for either dollars or crypto and don't want to have to reprice your product every time USD/ETH moves In either case offering a price in USDC for example would meet your needs. Your customers can pay in crypto but what you get is essentially the same as dollars (excluding transaction fees), so goods can be priced the same in crypto and cash and you're not exposed to crypto volatility on your holdings for the most part. So if you have a use case for businesses to price things in a stablecoin, then it follows that there are use cases for people to get stablecoin to use and therefore usecases for creating stablecoins, exchanging them for other crypto etc.

vkou 4y ago

It's possible for something like Tether to be resilient against a run, if the coin issuer redeems at ~0.999 to 1. The problem is not one of theoretical possibility, the problem is one of perverse incentives. Tether's operators have no reason not to go to Vegas and put all that money on a coin flip. Heads they win, tails their 'clients' lose. They'd be idiots to not do something like that.

deleted 4y ago

[deleted]

colinmhayes 4y ago

Commercial banks experience runs when they write illiquid loans that they can't sell at cost as fast as people cash out. If they never write loans or only write completely liquid loans that never default they will never get run. Tether could park all their assets in short term government debt and they would never have a problem, but they want to get higher returns.

deleted 4y ago
[deleted]

wmf 4y ago

The point is (1) to make trades denominated in USD when you're banned from actual USD and (2) to be able to transfer USD quickly between different crypto exchanges.

matthewdgreen 4y ago

If the issuer is well-regulated and the funds are kept in a regulated bank (or held in US Treasuries) then what you're doing is "tokenizing" existing banking infrastructure. This makes it easier for participants to quickly settle transactions and move fiat balances, without having to work through slow ACH-type networks or place major trust in their counterparties. There are still some risks (company will get hacked, executives will go rogue, banks won't be prepared for a major run) but these are fundamentally the sort of risks that the US banking industry has some experience with. These risks have nothing to do with what's going on at Tether: they don't seem to be regulated at all.

rossdavidh 4y ago

Q: "Can someone please explain the point of a stablecoin?" A: "...an unregulated, impossibly opaque fractional reserve system." Answering your own questions, well done. :)

kotlin2 4y ago

A stablecoin acts as a pegged currency, which is useful because the exchange rate between non-stable crypto coins and USD is highly volatile. For instance, let's say I wanted to implement something akin to a bond on a blockchain. It would be nice to have that smart contract pay out in a stablecoin to avoid any currency exchange risk.

smoovb 4y ago

Worldwide access to USD.

908087 4y ago

namdnay 4y ago

there are a lot of countries in which converting crypto to fiat is a taxable event, whereas converting from one type of crypto to another isn't.

RustyRussell 4y ago
Really? That seems weird to me. Do you know of one?
- namdnay 4y ago
  France for example. As long as it’s unicorn money it’s not taxable, but if you convert to real money or buy goods and services, that income is taxed