6 ms·

There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't

There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't change. That's the regime of Tether. Nobody will even be mad when the rug gets pulled. The federal reserve could stand to learn a thing or two, honestly.

espadrine 4y ago
What could the Federal Reserve learn? The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants. USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.
- pclmulqdq 4y ago
  Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time? Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.
  - dantheman 4y ago
    I'd say they should learn that super low interest rates are nonsense.
    - pclmulqdq 4y ago
      The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.
  - Analemma_ 4y ago
    This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.
  - HWR_14 4y ago
    I don't know anyone who expected sub 50 bps raises each quarter for a while now.
    - pclmulqdq 4y ago
      SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.
  - mitthrowaway2 4y ago
    I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs. This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly. So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.
bombolo 4y ago
USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.
- xref 4y ago
  Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to
  - wil421 4y ago
    Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.
    - fabian2k 4y ago
      You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.
      - deleted 4y ago
        [deleted]
      - wil421 4y ago
        If I’m visiting a country it’s usually as a tourist. Even on my business trips I spent half the time being a tourist.
        fabian2k 4y ago
        Handling a foreign currency is a lot of overhead, you will only find this accepted in locations where it is quite common for people to not have the local currency. If you're in the middle of Europe you'll have a hard time finding a place that will just accept US dollars outside of some very tourist focused destinations. And even there I'm not sure if it'll work. The places where I've seen this mostly work was near borders, and it makes sense that you'd accept the neighbour currency there even if it is some overhead. If you can quickly hop over the border you're much less likely to exchange currency before than if you plan a full trip in a different country.
jefftk 4y ago
> Nobody will even be mad when the rug gets pulled. Happy to bet on that ;)
bananapub 4y ago
> Nobody will even be mad when the rug gets pulled. this is one of the silliest comments I've ever seen on HN.

espadrine 4y ago

What could the Federal Reserve learn? The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants. USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.

pclmulqdq 4y ago
Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time? Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.
- dantheman 4y ago
  I'd say they should learn that super low interest rates are nonsense.
  - pclmulqdq 4y ago
    The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.
- Analemma_ 4y ago
  This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.
- HWR_14 4y ago
  I don't know anyone who expected sub 50 bps raises each quarter for a while now.
  - pclmulqdq 4y ago
    SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.
- mitthrowaway2 4y ago
  I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs. This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly. So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.

bombolo 4y ago

USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.

xref 4y ago
Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to
- wil421 4y ago
  Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.
  - fabian2k 4y ago
    You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.
    - deleted 4y ago
      [deleted]
    - wil421 4y ago
      If I’m visiting a country it’s usually as a tourist. Even on my business trips I spent half the time being a tourist.
      - fabian2k 4y ago
        Handling a foreign currency is a lot of overhead, you will only find this accepted in locations where it is quite common for people to not have the local currency. If you're in the middle of Europe you'll have a hard time finding a place that will just accept US dollars outside of some very tourist focused destinations. And even there I'm not sure if it'll work. The places where I've seen this mostly work was near borders, and it makes sense that you'd accept the neighbour currency there even if it is some overhead. If you can quickly hop over the border you're much less likely to exchange currency before than if you plan a full trip in a different country.

jefftk 4y ago

> Nobody will even be mad when the rug gets pulled. Happy to bet on that ;)

bananapub 4y ago

> Nobody will even be mad when the rug gets pulled. this is one of the silliest comments I've ever seen on HN.