7 ms·
Price of algorithmic stablecoin UST drops 2% below dollar peg
- chizhik-pyzhik 4y agoSuch is the risk of algorithmic stablecoins. The only ones that seem to work well have actual full collateral backing them (either some cryptocurrency, or actual dollars in a bank.)
- thebean11 4y agoDAI has worked pretty well though
- chizhik-pyzhik 4y agoYeah, exactly. DAI is fully collateralized. I guess what I mean is non-fully-backed algostables like ust and frax
- thebean11 4y agoRight but DAI is mostly backed by things that aren't pegged to USD like ETH and wBTC.
- Traster 4y agoI don't understand how you can use cryptocurrency as backing for a stable coin. Just as a matter of definition, if your stable coin is meant to be worth $1USD then your backing fluctuates with the price of the crypto that backs your stable coin. And to make matters worse, when BTC drops in value that's likely because there's a net outflow from BTC back into fiat, which is going to occur at the exact time that people want to redeem their USDT for their actual USD. So at the time that you're most in need of liquid collateral, you're least well collateralized. The only way I see this working is if you're not net long crypto, which I guess is possible but gives you heaps of market risk.
- omegalulw 4y agoHow is backing for stablecoins not regulated to kingdom come yet? Seems so asinine?
- linschn 4y agoSee for example : https://docs.synthetix.io/synopsis https://docs.synthetix.io/synopsis Basically you mint only a fraction of your collateral (typically 15%), so even a huge downturn of the price won't leave anybody hanging, and you provide a set of incentives for the owners of the collateral to adjust their staking depending on the price you are trying to follow. It's not too complex, and seems to me way better than trusting tether and Co.
- Traster 4y agoOk, so fundamentally it's heavily discounting the collateral. I guess that makes it safer, but doesn't that mean you need way more collateral to support it and therefore you're paying a really high cost of capital? I can support $1Bn of stablecoin if I have $1Bn of USD in reserve, but to support $1Bn of stablecoin in this case I'd need $6.7Bn of BTC in reserve. Sounds expensive surely?
- nly 4y agoThe trick is a technique called "traunching". You take your 1 BTC token and sell the bottom 20% of its market value as a stable coin, and sell top 20% as a derivative with exposure to Bitcoin, leveraged say, 3:1. If the BTC price collapses the people who bought your leveraged coin get wiped out, and effectively pay off the bottom guys. This is why leveraged Bitcoin pawn-style loans are all over the place.
- Traster 4y agoSo this relies on finding someone stupid enough to lever up 3x on the most volatile asset around? And not just someone, hundreds of millions of dollars of market cap worth of someones?
- lgats 4y agoofficial twitter update from terra https://twitter.com/terra_money/status/1523749536379793408 https://twitter.com/terra_money/status/1523749536379793408