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Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

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Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#81

Post by skohan »

nodesocket wrote: post #36
TacticalCoder wrote: post #16

Earlier quoted context omitted.

> Remember, Tether has no upside. There is no reason to ever hold Tether for any length of time. It looks like USDC, issued by a company co-owned by Coinbase (YC incubated right?) and Circle, is quickly replacing tether. One year ago there were about 1/10th of USDC compared to tether, now it's half. Apparently USDC are really fully backed by real USD and the smart contract for USDC can block any address containing US…

I hold a decent sized block of USDC via BlockFi and earn 8.6% APY. I realize there is inherent risk (after all, I am earning 8.6%) but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts and it's a risk I am willing to take. By default, BlockFi issues GUSD as their stablecoin of choice, but Gemini (GUSD) market cap is only $145m, whereas USDC market cap is 22 with a B billion. Ultim…

Don't you find it suspicious that BlockFi can offer such an incredible yield?

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#82

Post by htormey »

Animats wrote: post #10

I keep thinking of Madoff's fund. It was once called "the Jewish T-bill". It worked just fine until there was a significant net outflow. Then, total crash, because the backing assets were not there. Tether is way too much like that. Remember, Tether has no upside . There is no reason to ever hold Tether for any length of time. [1] https://www.timesofisrael.com/before-dying-bernie-madoff-lif...

People, mainly in Asia, use tether where trading crypto with fiat currencies is either prohibited or very difficult, whereas it remains marginal in markets such as the United States.

I.e places with exchanges that don’t have good fiat rails for various reasons.

https://www.cryptovantage.com/news/why-is-tether-so-popular-...

I assume these people don’t stay in tether long, they just use it like a checking account when they cash in and out of positions.

I also assume that if tether went away tomorrow, people would either use another stablecoin like USDC and if all stablecoins went away, they would just trade in and out of btc.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#83

Post by Animats »

droffel wrote: post #61
nodesocket wrote: post #36

Earlier quoted context omitted.

I hold a decent sized block of USDC via BlockFi and earn 8.6% APY. I realize there is inherent risk (after all, I am earning 8.6%) but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts and it's a risk I am willing to take. By default, BlockFi issues GUSD as their stablecoin of choice, but Gemini (GUSD) market cap is only $145m, whereas USDC market cap is 22 with a B billion. Ultim…

At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year? Considering that it would take over a decade to return the original capital in value, I feel that the compensation is low relative to the risk of loss. Ten years is a lot of time for a company to bungle your funds, especially in the cryptocurrency world.

BlockFi says they are lending at 4.5% and accepting deposits at 8.5%. What's wrong with this picture?

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#84

Post by fastball »

inter_netuser wrote: post #71
paulpauper wrote: post #66

Earlier quoted context omitted.

all stable coins can blacklist except DAI

why? can't maker implement blacklists?

DAI is managed decentrally by MKR holders so not really. At least not in a way that you wouldn't be able to do with any crypto.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#85

Post by Clewza313 »

Animats wrote: post #83
droffel wrote: post #61

Earlier quoted context omitted.

At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year? Considering that it would take over a decade to return the original capital in value, I feel that the compensation is low relative to the risk of loss. Ten years is a lot of time for a company to bungle your funds, especially in the cryptocurrency world.

BlockFi says they are lending at 4.5% and accepting deposits at 8.5%. What's wrong with this picture?

Let me get this straight: you can lend from BlockFi, deposit it straight back, and make a 4% profit?

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#86

Post by fastball »

SailingSperm wrote: post #74
droffel wrote: post #65

Earlier quoted context omitted.

Given that the 8.6% return is contingent on those funds being loaned out to third parties in a manner that involves risk (like margin trading), I am highly skeptical of their ability to not lose your money on the timeline of a decade. The trustworthiness of Blockfi doesn't matter if they mess up and end up loaning money to someone who ends up unable to pay the bill - and the person on the hook if the borrower does no…

The thing is though that most all of these crypto lending platforms only offer over collateralized loans, so the risk of them being screwed over by lack of payment from the person taking the loan is negligible. Meaning If I want to lend $100 worth of USDC I must give $200 as collateral worth of BTC to get the loan. Where if that $200 worth of BTC drops to a worth of $100, it's liquidated, paying off your loan, leavin…

Thank you! I've been trying for years to get someone to explain to me how DeFi loans make any sense whatsoever when they are all so over-collateralized. Your explanation helped put the pieces together a little bit. I still don't understand how the unit economics make much sense, but yeah.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#87

Post by Clewza313 »

peteretep wrote: post #50
nodesocket wrote: post #36

Earlier quoted context omitted.

I hold a decent sized block of USDC via BlockFi and earn 8.6% APY. I realize there is inherent risk (after all, I am earning 8.6%) but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts and it's a risk I am willing to take. By default, BlockFi issues GUSD as their stablecoin of choice, but Gemini (GUSD) market cap is only $145m, whereas USDC market cap is 22 with a B billion. Ultim…

> but compare that to 0.5% earned at Goldman Sachs or traditional FDIC insured bank accounts Why on earth would you compare it to those rather than an index tracker?

Because the increase in a share's value is tied to a company's profits and losses, while the increase in a cryptocurrency's value is tied to hot air and memes (exhibit A: Dogecoin).

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#88

Post by Clewza313 »

mortehu wrote: post #77
lvs wrote: post #72

Earlier quoted context omitted.

Not to mention that it's worth only a tiny fraction of bitcoin + all the other cryptos.

It costs $1 to increase the market cap of a fiat pegged stable coin by $1, while changing the market cap of Bitcoin is a lot cheaper because there's no safe way for a market maker to provide substantial liquidity for it. At any time this dynamic can start working in the other direction, and the market cap of Bitcoin can fall below the net value converted to it.

Well, no, it costs absolutely nothing to print off another billion Tethers. We only have the vaguest possible assurances that there's something behind each USDT, and they've already admitted it's not actual dollars.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#89

Post by MarkSweep »

Animats wrote: post #83
droffel wrote: post #61

Earlier quoted context omitted.

At 8.6% APY, would you say you believe you have a sub-8.6% chance of the funds disappearing in a given year? Considering that it would take over a decade to return the original capital in value, I feel that the compensation is low relative to the risk of loss. Ten years is a lot of time for a company to bungle your funds, especially in the cryptocurrency world.

BlockFi says they are lending at 4.5% and accepting deposits at 8.5%. What's wrong with this picture?

It makes more sense if you look at these rates:

https://blockfi.com/rates/

To qualify to borrow at 4.5%, you have to have a loan to value ratio of 20%. If I understand correctly, that means you have to deposit 5x crypt than the value of the loan.

On the savings side, the rates vary. If you deposit BTC, you earn 5% for the first 0.5 coins, 2% for the next 19.5 coins, and 0.5% for the rest.

Since the loans are secured, if the value of bitcoin does not move too much they can cover defaults by liquidating the collateral. Given the volatility of crypto currencies though, I still assume they will blow up at some point in the future.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#90

Post by fastball »

JackFr wrote: post #62
lubujackson wrote: post #51

Earlier quoted context omitted.

Tether imploding isn't at all like a public company closing shop, because public companies are Real Things and have public data about sales, revenue, employees, business relationships, etc. And even the ones that implode go through bankruptcy court where their assets are doled out to debtors and shareholders. Tether imploding would be more like a bank run, where you can see YOUR MONEY as a number on the screen then w…

To paraphrase: - when a company goes bust you still have shares your share -- no one wants to pay for them with dollars. - when tether implodes you still have your tether, but you can't turn it into dollars because there aren't any dollars to convert it too.

Wasn't that GC's point though? The run-on-a-bank analogy only applies if you are holding Tether when it happens. If you are rightfully paranoid about Tether and therefore don't hold any, what is the damage for you?
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