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What is the purpose of “stable” coins? If you want a thing that is worth a dollar, why not just use dollars? Or use Belize dollars. They’re worth $0.50 by law

What is the purpose of “stable” coins? If you want a thing that is worth a dollar, why not just use dollars? Or use Belize dollars. They’re worth $0.50 by law and have no instability issues.

Proven 4y ago
xiphias2 4y ago
Most people in the world don’t have access to the reserve currency of the world (especially the countries don’t have the right to print it), they are born in disadvantage.
- BillyTheKing 4y ago
  I'm not sure why you're being down-voted, but that's exactly the biggest real-world use-case for stable-coins. They're a way for people to buy USD and sell their own deflating currency
  - dragontamer 4y ago
    Except you aren't buying a USD when you buy a stablecoin. You are buying a fraud that pretends to be a dollar. A true dollar, offered by a bank or money market fund, has assurances from the US that it really exists in our federal reserve system. A stablecoin is a chuck e cheese token pretending to be a dollar. I can make an excel spreadsheet pretending I have a billion dollars, but I'd be a liar if I did that.
crizzlenizzle 4y ago
I think the idea was (or still is) to have dollars or some other equivalent that is more tangible and easier to transfer in the world of cryptocurrencies.
Ekaros 4y ago
Some explanations: 1) Actual regulated banking is ... well regulated. Buying and possibly selling monopoly money passes this regulation. 2) Making a token out of everything allows you to play on the chain. 3) There is profit in trading customers real money to your own monopoly tokens... Which of value is determined on market while you keep the real dollars. 4) It could allow some people to argue that they never realised any profits from their trading. Thus tax avoidance...
mrtksn 4y ago
The US dollar is regulated and it’s use and transfer creates all kind of legal issues and as a result institutions that handle its storage and transfer run heavy KYC and reject unconventional use cases. When you turn it into a stablecoin you no longer have to deal with all that, you can easily trade unregistered securities and engage in ponzis without an oversight. Okay this sounds a bit too cynical but each crypto bull market resulted in exactly that, unfortunately.
- louwrentius 4y ago
  I love the “unconventional use cases” as an euphemism for “crime”.
  - npc12345 4y ago
  - int_19h 4y ago
    Sure. Buying drugs that ought to have been legal all along, for example.
nly 4y ago
The problem isn't the concept, it's the backing. If the Fed were to announce an official USD stablecoin on Ethereum the chain could be used for international settlement. Of course, that will never happen as having the ability to restrict capital flows is a key power government wants to retain.
- rollcat 4y ago
  > The problem isn't the concept, it's the backing. If the Fed were to announce an official USD stablecoin [...] This sits right next to the sibling poster's comment: > The US dollar is regulated and it’s use and transfer crates all kind of legal issues [...] It looks like people who want stablecoins can't even agree on why they want them.
- netheril96 4y ago
  Most stable coins do have the power to restrict capital flows. USDT and USDC both can unilaterally freeze the coins of arbitrary addresses.
fredgrott 4y ago
The economic effects are the same as in the real world...i.e. stablecoin is leverage in that one has to have more assets set aside to peg the stable coin during bear markets. In short words more assets during bear market to help maintain the one dollar peg. Or opposite of the word stable coins during bear markets behind the scenes with the firms that have to dramatically increase the assets used to peg the one dollar value. That means we have two leverage levers at work the crypto coin used in trades and the stable coin itself.
nickez 4y ago
Tax, if your country has capital gain tax you need to declare every single trade to real USD. When you are trading between crypto pairs you are not realizing any gain, thus you don't need to declare it. Until you eventually sell of course.
- vgatherps 4y ago
  99.999% sure the IRS is not going to accept "but it was technically USDC not USD". The main reason was that historically, crypto institutions tended to be no-questions-asked blacklisted from any real bank, so those who could get banking made stablecoins. Circle, who runs USDC, got banking access from some favorable VC connections iirc, and Tether .... who knows.
- ne0flex 4y ago
  If you're trading crypto pairs then that is considered a taxable event.[0] Many people owed taxes in 2017 because of that rule. It's not considered a like-to-like exchange. [0] https://www.coindesk.com/learn/crypto-capital-gains-and-tax-rates-2022/ https://www.coindesk.com/learn/crypto-capital-gains-and-tax-...
- jefftk 4y ago
  Are you sure? What I've read is that every cryptocurrency transaction realizes the gain/loss, including trading one currency for another. See https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions https://www.irs.gov/individuals/international-taxpayers/freq...
- fomine3 4y ago
  It's wrong as other comments said, but there are related use cases. If you have much XMR, want to evade tax, and want your assets to be stable: you can't exchange it to real USD because it will be followed by tax office. However just exchange it to USDT (between your crypto wallet, not wallet on exchange) won't be followed by your local tax office. Finally you still need to wash the money or need to use them for virtual things like NFT, but it works as temporary solution.
jmyeet 4y ago
This is the oracle problem. The guarantees of blockchain and smart contracts only work with things on the blockchain. You can’t put US dollars on the blockchain obviously so you create a cryptocurrency that is on the blockchain and peg it to the US dollar. In reality you haven’t solved anything because there’s a trust element. It’s just moved. Also you need deep reserves to maintain a peg. There have been several attempts at an algorithmic stablecoin but they’ve had a tendency to collapse spectacularly. Maintaining a peg in the real world is tricky too. Real world pegs can and do fail.
deleted 4y ago
[deleted]
maria2 4y ago
Crypto is programmable money. However, if you use non-stable coins then you open yourself up to exchange rate risk, especially given how volatile the price can be. Stable coins are an attempt to create programmable dollars, essentially.
Zanfa 4y ago
> What is the purpose of “stable” coins? If you want a thing that is worth a dollar, why not just use dollars? Random exchanges can‘t print dollars, but they can print stablecoins to prop up other crypto prices.
- jfk13 4y ago
  On the other hand, if random exchanges can print them, there's little to guarantee their stability.
maxerickson 4y ago
Grifting.

What is the purpose of “stable” coins? If you want a thing that is worth a dollar, why not just use dollars? Or use Belize dollars. They’re worth $0.50 by law and have no instability issues.

Proven 4y ago

xiphias2 4y ago

Most people in the world don’t have access to the reserve currency of the world (especially the countries don’t have the right to print it), they are born in disadvantage.

BillyTheKing 4y ago
I'm not sure why you're being down-voted, but that's exactly the biggest real-world use-case for stable-coins. They're a way for people to buy USD and sell their own deflating currency
- dragontamer 4y ago
  Except you aren't buying a USD when you buy a stablecoin. You are buying a fraud that pretends to be a dollar. A true dollar, offered by a bank or money market fund, has assurances from the US that it really exists in our federal reserve system. A stablecoin is a chuck e cheese token pretending to be a dollar. I can make an excel spreadsheet pretending I have a billion dollars, but I'd be a liar if I did that.

crizzlenizzle 4y ago

I think the idea was (or still is) to have dollars or some other equivalent that is more tangible and easier to transfer in the world of cryptocurrencies.

Ekaros 4y ago

Some explanations: 1) Actual regulated banking is ... well regulated. Buying and possibly selling monopoly money passes this regulation. 2) Making a token out of everything allows you to play on the chain. 3) There is profit in trading customers real money to your own monopoly tokens... Which of value is determined on market while you keep the real dollars. 4) It could allow some people to argue that they never realised any profits from their trading. Thus tax avoidance...

mrtksn 4y ago

The US dollar is regulated and it’s use and transfer creates all kind of legal issues and as a result institutions that handle its storage and transfer run heavy KYC and reject unconventional use cases. When you turn it into a stablecoin you no longer have to deal with all that, you can easily trade unregistered securities and engage in ponzis without an oversight. Okay this sounds a bit too cynical but each crypto bull market resulted in exactly that, unfortunately.

louwrentius 4y ago
I love the “unconventional use cases” as an euphemism for “crime”.
- npc12345 4y ago
- int_19h 4y ago
  Sure. Buying drugs that ought to have been legal all along, for example.

nly 4y ago

The problem isn't the concept, it's the backing. If the Fed were to announce an official USD stablecoin on Ethereum the chain could be used for international settlement. Of course, that will never happen as having the ability to restrict capital flows is a key power government wants to retain.

rollcat 4y ago
> The problem isn't the concept, it's the backing. If the Fed were to announce an official USD stablecoin [...] This sits right next to the sibling poster's comment: > The US dollar is regulated and it’s use and transfer crates all kind of legal issues [...] It looks like people who want stablecoins can't even agree on why they want them.
netheril96 4y ago
Most stable coins do have the power to restrict capital flows. USDT and USDC both can unilaterally freeze the coins of arbitrary addresses.

fredgrott 4y ago

The economic effects are the same as in the real world...i.e. stablecoin is leverage in that one has to have more assets set aside to peg the stable coin during bear markets. In short words more assets during bear market to help maintain the one dollar peg. Or opposite of the word stable coins during bear markets behind the scenes with the firms that have to dramatically increase the assets used to peg the one dollar value. That means we have two leverage levers at work the crypto coin used in trades and the stable coin itself.

nickez 4y ago

Tax, if your country has capital gain tax you need to declare every single trade to real USD. When you are trading between crypto pairs you are not realizing any gain, thus you don't need to declare it. Until you eventually sell of course.

vgatherps 4y ago
99.999% sure the IRS is not going to accept "but it was technically USDC not USD". The main reason was that historically, crypto institutions tended to be no-questions-asked blacklisted from any real bank, so those who could get banking made stablecoins. Circle, who runs USDC, got banking access from some favorable VC connections iirc, and Tether .... who knows.
ne0flex 4y ago
If you're trading crypto pairs then that is considered a taxable event.[0] Many people owed taxes in 2017 because of that rule. It's not considered a like-to-like exchange. [0] https://www.coindesk.com/learn/crypto-capital-gains-and-tax-rates-2022/ https://www.coindesk.com/learn/crypto-capital-gains-and-tax-...
jefftk 4y ago
Are you sure? What I've read is that every cryptocurrency transaction realizes the gain/loss, including trading one currency for another. See https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions https://www.irs.gov/individuals/international-taxpayers/freq...
fomine3 4y ago
It's wrong as other comments said, but there are related use cases. If you have much XMR, want to evade tax, and want your assets to be stable: you can't exchange it to real USD because it will be followed by tax office. However just exchange it to USDT (between your crypto wallet, not wallet on exchange) won't be followed by your local tax office. Finally you still need to wash the money or need to use them for virtual things like NFT, but it works as temporary solution.

jmyeet 4y ago

This is the oracle problem. The guarantees of blockchain and smart contracts only work with things on the blockchain. You can’t put US dollars on the blockchain obviously so you create a cryptocurrency that is on the blockchain and peg it to the US dollar. In reality you haven’t solved anything because there’s a trust element. It’s just moved. Also you need deep reserves to maintain a peg. There have been several attempts at an algorithmic stablecoin but they’ve had a tendency to collapse spectacularly. Maintaining a peg in the real world is tricky too. Real world pegs can and do fail.

deleted 4y ago

[deleted]

maria2 4y ago

Crypto is programmable money. However, if you use non-stable coins then you open yourself up to exchange rate risk, especially given how volatile the price can be. Stable coins are an attempt to create programmable dollars, essentially.

Zanfa 4y ago

> What is the purpose of “stable” coins? If you want a thing that is worth a dollar, why not just use dollars? Random exchanges can‘t print dollars, but they can print stablecoins to prop up other crypto prices.

jfk13 4y ago
On the other hand, if random exchanges can print them, there's little to guarantee their stability.

maxerickson 4y ago

Grifting.