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Stablecoins: Growth potential and impact on banking

• jimbob45 5y ago
  It seems disingenuous to host papers on FederalReserve.gov on a topic that already undergoes a great deal of inauthentic marketing. It seems like the Fed lending credibility to private enterprises that may not have as altruistic of intentions as the Fed.
  • WJW 5y ago
    It's a paper analyzing the (potential) impact of stablecoins on the currency and institutions governed by the federal reserve, written by people working for the federal reserve, with the intention of providing facts as a basis for potential regulations to be written by the federal reserve. Where else would it be hosted?
    • anm89 5y ago
      Powell should just dump it onto 4chan
• stjohnswarts 5y ago
  Honest question: how many hackernews people are cool with all their purchases being on a blockchain forever that is accessible ad infinitum to whichever party has access to it (and potentially all of the public) ?
  • steelstraw 5y ago
    There are ways to maintain privacy with things like Block Wallet: https://blockwallet.io/ https://blockwallet.io/
  • golergka 5y ago
    For most purposes, it doesn't matter. For others, there's Monero.
  • gogopuppygogo 5y ago
    I am not. When I speak with those in defi they hardly even understand the most basic aspects of this technology. My personal hope is that quantum computing develops fast enough to decimate the decentralized financial industry powered by blockchain.
    • Galanwe 5y ago
      I don't think any forward looking state of quantum computing threatens SHA2.
  • tenuousemphasis 5y ago
    Even Bitcoin has the Lightning network that uses some clever smart contacts to avoid having to record every purchase on the blockchain. it's a layer built on top of Bitcoin that only requires an on-chain transaction to open or close a payment channel. Once the channel is open you can make a lot of extremely private payments through it.
  • deleted 5y ago
    [deleted]
  • tcgv 5y ago
    Good question. There are tools and procedures that can be used to maintain anonymity within the blockchain. For instance, tornado cash is a popular dapp used to break the on-chain link between source and destination addresses of a transaction, so you could fund a spending address and make payments with it. The companies receiving money (stablecoins) would maintain off-chain data of your purchase (e.g. product, quantity, your contact info and delivery address) not available publicly.
    • woodruffw 5y ago
      The UX of paying a third-party broker to opt into a semblance of privacy isn't particularly great. It's amusing (to me) how the cryptocurrency community has managed to convince its members to accept ridiculous amounts of commoditization and middlemen in exchange for anonymity properties that are strictly worse than cash, and arguably worse than payment cards.
      • tcgv 5y ago
        What do you mean by third party broker? Tornado Cash is a decentralized protocol based on zero knowledge proofs. Its smart contracts are immutable, have no admins. Besides that, let us not forget that the Mastercard/Visa middlemen charge us large fees for using their services and knows everthing about our purchase habits. (unless you're living a cash based life, but that would make you an exception)
        • woodruffw 5y ago
          I don't know about Tornado Cash specifically, but every cryptocurrency tumbler that I'm familiar with takes a cut of the pork, on top of any transaction fees. This community discussion[1] makes it sound expensive. > Besides that, let us not forget that the Mastercard/Visa middlemen charge us large fees for using their services and knows everthing about our purchase habits. This is a common refrain, but it isn't quite accurate: the payment card networks charge merchants to use their services. And sure, they know what you buy. But my Aunt Susie doesn't, nor does the next person who I pay using my payment card. Privacy as a concept is described by the security or threat model one is trying to conform to; cash and payment cards both protect me from unrelated prying eyes. Cryptocurrencies can also protect me from prying eyes, but they charge me for the privilege. By default, both my Aunt Susie and my neighborhood restaurant can see that I've been unfaithful and tried a new place for dinner. [1]: https://torn.community/t/fee-how-much-does-it-cost-to-use/68 https://torn.community/t/fee-how-much-does-it-cost-to-use/68
  • wmf 5y ago
    Crypto isn't for purchases, but if you decide to do that you should use an anonymous cryptocurrency.
    • pirate787 5y ago
      Actually Bitcoin's initial promise was as a form of cash for purchases, and it has failed spectacularly to the point where even the strongest proponents rarely make that claim.
    • losteric 5y ago
      cryptocurrency is not intended for making purchases?
      • wmf 5y ago
        Cryptocurrency is not currency (unit of account); we just call it that for historical reasons. It's not usable for purchases and the intent is irrelevant.
        • Bellyache5 5y ago
          So what is it then?
          • deleted 5y ago
            [deleted]
          • yazaddaruvala 5y ago
            Disclaimer: This is just my interpretation of “unit of account”. This is not me agreeing with it or advocating for it. When people say “unit of account” basically what they are saying is: Cryptocurrency is an Open Source rewrite of the banking systems that currently run on Cobal. “Banks, please start using them as your database and reconciliation layer instead of your legacy software.” Meanwhile, users continue to use credit / debit cards as they do now, and they continue to see some number on their bank accounts going up and down regardless of where the “money” actually is. Which is the same as today. That’s why we see “Pending” across so many of our transactions.
  • godot 5y ago
    This question presumes the envisioned future is where each person has their own non-custodial wallet that holds stablecoins that they use in transactions, no? If the current trajectory is any indication, it's more likely that everyday users would mostly hold custodial accounts at organizations (e.g. Coinbase, like banks) and use stablecoins that way, which control aggregate wallets, and trackability stays within the org level (also like banks). Probably not as easy for the public to access (possible in data hacks) but just as easy for government access.
    • elevaet 5y ago
      Amusing how it's gone from "be your own bank" back around to centralization, but this time with a colossal energy footprint behind it. Same shit, bigger pile I guess.
      • tenuousemphasis 5y ago
        You can always build centralized systems on top of decentralized ones in order to mitigate the scaling costs of decentralization. It's essentially impossible to build a decentralized system on top of a centralized one in order to mitigate the downsides of centralization.
        • spupe 5y ago
          I don't think that's the case. If Paypal wanted, and it was legally allowed, they could anonymize my data to an extent where not even their own team could know who I am. We don't do it because it would be open to fraud and scams, not because it is impossible.
          • tenuousemphasis 5y ago
            You didn't actually address anything I said. I'm not talking about privacy at all.
  • rmbyrro 5y ago
    I'm in
  • TimJRobinson 5y ago
    There are technologies like Tornado cash and Railgun that can hide transactions on Ethereum. The current issue is they're too expensive to use on mainnet. Once we have layer 2 payments using zk-rollups, transaction costs will fall to a few cents and many apps could easily integrate these technologies to tumble your wallet (taking all funds and send them through this tech into a new wallet) any time you want for a dollar or two. Or they could automatically do this after every transaction. Then everyone will have access to easy completely anonymous payments in any currency they like. We're just in the early days of this tech, like the internet when we used http everywhere and no one knew what a VPN was.
    • T0Bi 5y ago
      Fortunately tornado cash is already on L2, I think even on every single bigger L2. Not with the same volume as on mainnet, but still gradually increasing.
• uncomputation 5y ago
  > As commercial banks engage in fractional-reserve banking with stablecoin deposits, their balance sheet expands with expansions in credit and security holdings accounting for most of the expansion. The central bank shrinks its balance sheet on the net, as reserves increase slightly while cash liabilities decrease significantly. Households accumulate more assets, funded by the expansion in bank loans. This is basically saying everyone can get more money because the Fed is less bound by its cash liabilities. This could allow them more direct control over the money supply which is less tied to physical cash deposits. Cautiously optimistic here but this seems like a good thing overall. One problem scenario: banks invest more with larger balance sheets. What if those investments fail? Now they have liabilities for their deposits which are backed by stable coins which, in turn, are backed by the Fed, which has slightly more cash than before (due to households replacing cash with stable coins) but likely not enough to cover the difference. Could this be a problem or would the Fed simply print more stable coins?
  • aftbit 5y ago
    I was with you to the end... how can the Fed print more stable coins? Unless you're suggesting that they'd issue their own stable USD, which honestly would be a great idea. IMO it seems more likely that they'd print more traditional dollars via congressional authorization or treasury nonsense instead.
    • uncomputation 5y ago
      “Print” stable coins referring to issuing their own CBCD, yes. I mean, the Fed determines monetary policy, correct? They control the interest rates of the economy basically which gives them all sorts of levers to manipulate. My concern is basically: banks have more assets, backed with CBDC, in turn backed by the Fed. If banks make poor investments (say in a housing market which collapses and they are unable to sell their underlying assets), their “money” is even less tied to cash than before, since the Fed can now just issue more CDBC without needing cash reserves. It seems to be getting all a bit abstract.
• paulhodge 5y ago
  speaking of stablecoins, I remember reading a few years ago that Tether (USDT) was surely a huge bubble waiting to pop because they couldn't possibly have enough liquid USD to cover their issued coins. Whatever happened to that story, is it basically the same situation today?
  • wvlia5 5y ago
    Yes, but usdt is not as important as it used to be
  • TimJRobinson 5y ago
    It's still a similar situation, but most people with a basic understanding of crypto avoid USDT if they can, because there are better alternatives now.
• godelski 5y ago
  I'm actually pretty worried about a fed coin. I can see it being a big win or a big loss to Americans and citizens of other countries. The big potential downside I see is that a digital currency can be easily tracked (blockchain or not blockchain, this is possible). Every bitcoin transaction is recorded, with a full history, and we can identify from who to whom (assuming we know who owns a wallet address, which I think is expected here). On the other hand, if a digital currency is using ZKPs then it would be a big win for privacy because it would be like digital cash. But I'm under the impression that this is unlikely to happen. There's questions about how we'd track things like taxes and for some reason the answer of "the same way we do now and the same way we did before digital money" isn't sufficient. I even see this as a win if there's a flat consumption tax (gas). But I almost never see this discussion taking place. So I'm curious what other HN users think. This seems like a nuanced distinction that I don't think anyone that isn't tech literate would even be aware of.
  • nathias 5y ago
    The real benefits could come from making taxation easy and automatic and a requirement that all public transactions be publically accessible while private could remain private. But I don't see states implementing this at any point, but maybe the reverse will happen anonimized public transactions while individuals have to keep all transactions transparent to states.
    • godelski 5y ago
      As I see it, there can be a lot of benefits to everyone. - Gov can easily collect consumption taxes through transaction fees - Make transactions completely anonymous (similar to cash) - Ease government infrastructure as we no longer need to print physical currency that can be lost or destroyed. Also potentially helping with counterfeit money. I'm also assuming coins would be pre-mined. The major disadvantage I see is: Gov could reduce anonymity and further invade privacy of everyday citizens. I see this as too much power the dream of authoritarians. I don't think you would need the public/private transaction paradigm (like zcash). We can watch transactions from wallets and know the owners without knowing who transactions are going to. This would operate the same way cash businesses operate. In a business wallet you'd still have to report everything on your taxes. We can still see when businesses make and lose money by tracking just their wallets. I think the best way to do this is not have wallets with special privileges nor privileged transactions. If we have to explicitly make transactions private they can do the same thing they do with encryption: "only bad guys use encryption because they have something to hide".
• Hippocrates 5y ago
  Stablecoins are a vital part of decentralized exchanges (DEXs). Since there is no central party running the exchange, it is impossible to store or account for a FIAT money. With stables, you can pull out of crypto on a DEX and hold some (virtual) inflationary FIAT with very low slippage and fees. You're free to re-enter at a later time, or swap 1:1 for FIAT on a CEX. Stables have the transferability properties of crypto (borderless, fast, no counter-party risk) without the downside of the erratic price fluctuations. A common critique of crypto is that it's too volatile to be paid in, or spent day-to-day, which is fair. Stables solve that mostly. Other issues with backing/reserves and who is getting rich off the interest are important but I feel that stables are a valuable piece of the financial space and I hope they can be regulated lightly to eliminate some of those black-box characteristics.
• deleted 5y ago
  [deleted]
• joelbondurant1 5y ago
• Hokusai 5y ago
  > Additionally, dollar-pegged stablecoins backed by adequately safe and liquid collateral can potentially serve as a digital safe haven currency during periods of crypto market distress. That's the Federal Reserve being themselves. Buy US dollars, use US dollars as the global currency. It makes a lot of sense for the USA, not necessarily for the rest of the world. But the Federal Reserve represents it's country interest, so it makes sense.
  • lupire 5y ago
    Also, wouldn't that transfer the stress from crypto to USD, by creating inflation whenever people exit crypto?
  • Terry_Roll 5y ago
    The Chinese currency used to be and might still be pegged to the US dollar so why shouldnt I invest in the Chinese govt debt instead? I do know some parts of the US govt has complained about the pegging because it made US workers more expensive than Chinese workers. And the I remember the £ in the 90's crashing out of the Exchange Rate Mechanism when it was pegged to the German DM as Germany had(still has) a strong economy which sent interest rates soaring to something like 12 or 15%!!! So pegging currency to others must be more nuanced than that it seems.
    • seanmcdirmid 5y ago
      I don’t think you can invest in Chinese government debt as a foreigner, but there are some real estate bonds you can buy…just not very safe.
      • unmole 5y ago
        > I don’t think you can invest in Chinese government debt as a foreigner You most certainly can. Hell, there are ETFs that allow you to do that.
    • vkou 5y ago
      > The Chinese currency used to be and might still be pegged to the US dollar so why shouldnt I invest in the Chinese govt debt instead? Because the US makes it easy for you to trade dollars around. The dollar's dominance will collapse the moment that significant restrictions are introduced around who can hold it, how they can hold it, and what they can trade it for. China doesn't care one whit about making it easy for a foreigner (or a local) to trade its money (or derivatives) around. China cares about stabilizing its economy. If the CPC decides tomorrow that currency controls are necessary to stabilize their economy, you're going to be SOL. If the CPC decides tomorrow that USD, or BTC, or RMB can't flow out of China, you're SOL. And so on, and so on. I wouldn't recommend making investments when you don't understand the risks.
• TameAntelope 5y ago
  I'm not really an expert on anything crypto, but I very much like the idea of stablecoins as a realistic bridge between the traditional financial system and cryptocurrency technologies. Honestly I think it's both understandable and sad how aggressive people have gotten about trying to get organizations to "prove" they're adequately backing their stablecoins with cash reserves. It feels like a fundamental misunderstanding that arises from layperson terms vs. legal/accounting terms. Attestations vs. audits, what purpose each one serves in an accounting sense, and why an organization would opt for one over another; these are conversations I don't see being had, but conversations that, I think, would clear a lot of the frustration and confusion up, on the part of the skeptics.
  • whoisburbansky 5y ago
    Are you lamenting the aggression or the mere fact that the organizations are being asked to prove adequate backing?
    • EGreg 5y ago
      Why are the authorities asking stablecoins to prove 100% reserves, also letting banks have fractional reserves closer to zero... and since 2020, actually let them have zero percent reserves: https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm Zero reserves means print as much as you want, subject only to the bank's own underwriters. The banks went and minted trillions of dollars in unbacked currency. Most of our fiat money supply comes from M2 and M3 money issued by banks. Meanwhile, algorithmic stablecoins like DAI have 150% reserves, yet the government doesn't trust them as much as the banking system?
      • 6gvONxR4sf7o 5y ago
        Isn't it because the stablecoins are asserting 100% reserves?
        • remarkEon 5y ago
• nathias 5y ago
  The grail of crypto is syntetic anonymous stablecoins which will free everyone from the games of the people in power, but the backed by fiat centralized stablecoins will be used by governments and banks to further their control over people.
  • vmception 5y ago
    read the paper, the Federal Reserve knows this too and isn't advocating for FEDcoin in this paper. They even know the word "composability" and have lended credibility to the term and context as morphed by the smart contract space. > . On public blockchains, this also allows for 24-hours-a-day/7- days-a-week/365-days-a-year transactions.5 Second, stablecoins are typically built on DLT standards that are programmable and allow for the composability of services.6 In this context, “composability” means stablecoins can function as self-contained building blocks that interoperate with smart contracts (self-executing programmable contracts) to create payment and other financial services.7 These two key features underpin the current use cases of stablecoins and support innovation in both the financial and non-financial sectors. > The public algorithmic stablecoin sector is highly innovative and difficult to categorize. However, one can generally think of the design of these stablecoins as based on two mechanisms: (1) the collateralized mechanism and (2) the algorithmic peg mechanism
    • nathias 5y ago
      This is not the focus of this paper, but they do mention consumer safety and KYC and AML issues, which if the ecosystem matures they will try to enforce for sure.
  • wolverine876 5y ago
    > backed by fiat centralized stablecoins will be used by governments and banks to further their control over people. Democratic government is the people; it is the people having power over things. Other sources of power, like big business and wealthy people, like to spread ideas deriding government (e.g., the Koch Brothers), so that the power shifts to them. Who has power over your favorite cryptocurrency? If government gives up regulatory power, who gets that power? Reasonably, the American people want control over the currency and money supply in their own country.
• vmception 5y ago
  This is a great paper. Its basically saying "wow DeFi is amazing". at this point I'm not sure who else other people need to hear it from, but let's see.
  • uncomputation 5y ago
    DeFi? This is for a CBDC.
    • wmf 5y ago
      If you think DeFi with USDT/USDC is decentralized then DeFi using FedCoin would be no worse. It might be better since with USDT you have to trust Tether and the Federal Reserve but with FedCoin you only have to trust one.
    • vmception 5y ago
      The paper is not advocating for CBDC. The paper is spurred by the sentiment for CBDC and the groanings of representatives in Congress, but this is not the direction or conclusion the paper made. Its pretty well balanced.
• premek 5y ago
  Growth? That's not good for stablecoins
  • stjohnswarts 5y ago
    Isn't it growth as in usage rather than value? I thought stablecoins were locked to a currency?
  • nerdwaller 5y ago
    Growth in terms of supply and usage, not the notional value of a unit.
• rasengan 5y ago
  > Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.
• cgb223 5y ago
  What I don’t get is if stable coins aren’t backed by dollars somewhere, and their market cap is billions of dollars, and those stable coins are exchanged for actual dollars, did we not just print billions of extra dollars out of thin air…? Surely that must have some impact on inflation or the world economy in some sense
  • vmception 5y ago
    This paper would make those questions evaporate. Purely algorithmic stablecoins are a joke so far, whereas algorithmic overcollateralized stablecoins are doing great. The other even bigger ones backed by dollars somewhere.
    • nuclx 5y ago
      Terra UST is doing quite well in spite of being receiving some FUD recently, right?
  • somewhereoutth 5y ago
    Stablecoins only maintain their peg when they aren't being exchanged for actual dollars. When everyone runs for the exits during the inevitable crash, there will only be so many dollars to go round. No real dollars are being created anywhere in any of this - it is all simply a astonishingly complicated mechanism for transferring wealth from the marks to the scammers (and to pay some enormous electricity bills). For example, printing USDT out of thin air and buying BTC with it supports the BTC price, this BTC is then brought onto the Tether books to back the newly printed USDT. The scammers then sell their own BTC into this price rise, receiving USDT which they (as privileged USDT account holders) can turn back into real dollars. The real dollars of course are coming from the marks who see BTC rising and dump their life savings into it, needing to buy USDT in order to buy the BTC. It is almost beautiful in a way - and absolutely should be shutdown real soon now.
  • lariati 5y ago
    Obviously, but people will cherry pick evidence to rationalize what they already believe to be true and conflate this process with some kind objective falsifiable experiment in their head.
• karpierz 5y ago
  The first author left the Federal Reserve right after this paper to lead research at a crypto exchange: https://twitter.com/gordonliao/status/1484605701435523072 https://twitter.com/gordonliao/status/1484605701435523072
  • willmadden 5y ago
    Great catch. That's a shockingly good paper on stable coins!
    • kadidihandre 5y ago
      Yeah that guy who later joined Uniswap is an asian-american Phd from Harvard genius boii
      • redwood 5y ago
        What's ethnicity got to do with this?
  • kyruzic 5y ago
    Uniswap is not a crypto exchange. The uniswap router, is a decentralized exchange. Once deployed uniswap does not control it.
  • Animats 5y ago
    Oh.
• thisgoesnowhere 5y ago
  • pibechorro 5y ago
    and this is different from other industries and traditional finance?
    • thisgoesnowhere 5y ago
      No. No its not.
• somewhereoutth 5y ago
  One way to look at BTC (and friends) is as a kind of financial heat pump, except moving money instead of heat. As with the traditional heat pump there is a working fluid - the coins. These coins have a price (in dollars) - this is their temperature. The market is cycled just as a heat pump, with the working fluid being squeezed by buying pressure to raise the price, then released by selling to reduce the price and start the cycle again. By controlling the cycle (e.g. by printing USDT out of thin air), the scammers ensure that the marks are buying in when the price is high, because they believe it will continue rising, and sell when the price is low, because they fear a further drop. Thus money is pumped from the marks to the scammers. MOON->FOMO->HODL->DUMP->MOON-> MOON - scammers buy in to start raising the price. Early marks start entering and the scammers can reduce their buying as the price takes off. FOMO - late marks come in wanting some of the action. Scammers are now shifting to selling, with max selling as the top is reached and marks buying power becomes exhausted. HODL - price is dipping, scammers still are selling, but marks are holding expecting prices to recover. DUMP - heavy price falls are now frightening the marks, who start closing their positions. Scammers are quietly hoovering up the excess, and gradually put a floor to the price. Repeat. Note that the scammers coin holdings are conserved across the whole cycle - but because of the price differential between their buying and selling phases, they make a profit over that cycle. BTC has gone through 2 such cycles in the last year or two, maybe it is just entering the MOON phase again now?
  • woah 5y ago
    With an ability to foresee the future, surely there are better ways to make money?
  • wesleywt 5y ago
    Like the stock market.
  • 5350-uiop-1130 5y ago
    This is pretty much the Wyckoff method which can be found in crypto and all other speculative markets too.
• saul_goodman 5y ago
  Any stablecoins pegged to the dollar are loosing value at all times due to inflation. During normal times its ~2% annually, but right now it's much worse than that of course. I appreciate the idea of stablecoins and they certainly have a utility value in higher stability, but I can't envision any circumstance one would want to hodl a large amount of stablecoins as an asset. [Edit] And now that I've actually read some of the paper it makes sense the Fed would be ok with backing some stablecoins with reserves. It provides the government a way to get a taste of an invisible tax on it via inflation (as all stablecoins are exposed to inflation). Another angle I had not fully comprehended before is the governments complaint that stablecoins are only fractionally backed. While the reserve system is obviously a fractional reserve system, crypto represents solely the cash component of that system just as the US dollar does. Crypto does not represent a reserve split circuit money system. So, in order for crypto to operate as a fractional reserve it is doing something distinct (and a little more dangerous) from our current reserve system and hence why crypto is getting heat for this behavior. And of course any currency system operating freely outside of the reserve system is a challenge to the Fed's authority so there will naturally be pressure to get crypto tied in somehow. The Fed's other paper released this month with the open call for CBDC feedback would seem to tie nicely into this one. In that paper they quickly realized that they needed to take over that last 10% of the US population that don't use banking services in order to successfully kill off cash. The other branch of that problem they did not discuss in that paper is tying crypto into the reserve system. We're doomed the moment Congress blesses the Fed with the legal authority to issue CBDC backed by reserves. It's coming. https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf https://www.federalreserve.gov/publications/files/money-and-... https://headlineusa.com/bank-of-international-settlements-chief-talks-absolute-control/ https://headlineusa.com/bank-of-international-settlements-ch...
• dataflow 5y ago
  Can someone explain how a stablecoin is different from the fiat it's backed by, other than the name? Like why can't/shouldn't the government claim that a USD "coin" is just another name for... USD? And therefore maintaining a balance or reserve of it is equivalent to maintaining a bank account? (edit: or maybe I should say "fiat deposit account", which may not be FDIC insured)
  • Raidion 5y ago
    One is backed by the US government, but isn't able to be used on chain. One is backed by a bank account, and is able to be used on chain. Assuming the organization behind it appears to be good for the 1/1 USD/USDC exchange at all times that system works, but stuff gets weird if that peg ever moves.
    • dataflow 5y ago
      The "chain" isn't a Thing that somehow changes the nature of whatever it records though, right? If I ran a bank and wrote people's balances on bamboo, and executed transfers via carrier pigeons, that wouldn't suddenly change the currency, right? The government backing also seems beside the point - even for non-FDIC-insured entities, holding someone's money to give it back to them later makes their money become backed by you, but doesn't change the currency.
  • dandanua 5y ago
    USD banknote is a proof that USA as a country owes you a particular amount of good. USDT is a proof that some shady unregulated organization owes you an equivalent amount of good. "Backed by USD" is just a claim (99% lie, in reality).
• ouid 5y ago
  I'm confused why the comments here aren't more critical of stablecoins. A stablecoin is just a bank deposit without an interest rate, and with very little in the way of regulation over what the issuer does with the cash that has been deposited. Without some other mechanism, they wouldn't exist except as a novelty. The question must become "what is the other mechanism?". In the case of Tether, which has the largest market cap of any stablecoin, as far as I know, the scam is this. If I want to have liquidity on Bitfinex, I need to go buy tethers. If I try to make a transaction for bitcoins with dollars on the exchange, it could take days to process. There's no particular reason for this, You're just trading shares of a large wallet. So I must first go buy some tether from bitfinex, but wait, USD to Tether liquidity is also artifically capped. If I try to buy tether for dollars, it can also take days. It follows that the only way to obtain liquidity on one of these exchanges is to buy and hold stablecoins. This is the premise upon which the exchanges that print these currencies can then turn around and lend the dollars used to buy them. If you discovered, suddenly, that a casino had 78 billion dollars in chips just floating around, you would rightly wonder what the hell was going on, although the explanation would likely be different. Tether is not a cryptocurrency, it's a casino chip. An escrow account that the bank is illegally investing in risky securities, entirely for the profit of its executives, investment in which is entirely funded by manipulating access to the wider crypto market.
  • csa 5y ago
    > The question must become "what is the other mechanism?". For one, in theory, one useful aspect of a stable coin is to allow a user to get in and out of numerous crypto currencies while minimizing fees and delays. Any engagement with the fiat banking system will typically cost time and/or money basically due to the potential for fraud and existing anti-fraud measures both for the banks as well as the exchanges. As such, stable coins in theory should be a reasonable proxy for fiat for folks who trade crypto aggressively (e.g., day trading). In practice, you get the train wreck that is Tether and Bitfinex. I realize that Tether is huge, but it’s not the best poster child for what a stable coin should be or can be. I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward. A second mechanism, and I think this is a big one, is that stable coins managed directly or indirectly by nation states (specifically US and China and maybe EU) will be a big deal in developing countries for both savings as well as transactions. China is already doing this on a small scale. Without getting into the nitty gritty, being a winner in this area will provide the issuer of the stable coin a tremendous amount of influence on the world economy.