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

wsj.com

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

#121

Post by G3rn0ti »

dannyw wrote: post #73
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…

Dollar yields in the crypto universe have forever been higher. I've consistently got 12-25% per year from 2015 using exchanges like Bitfinex and haven't lost a single dollar. Why isn't it arbitrated away? Because institutions and market makers don't trust crypto. When they do, I'm sure it'll go as low as rest of market rates.

One of the reasons why the yields are higher for stable coins is they are not bound by central banks‘ interest rates. This is especially true for purely synthetic stable coins (DAI, sUSD, sEUR) because they don’t even need to be backed by the underlying asset.

The other reason is they cut the middle man between a creditor and debtor i.e. banks.

If banks started to sell financial products based on liquidity pools, they had a hard time to compete with places like compound or aave. However, they would set themselves free of the federal fund rate and therefore they could actually provide higher rates to their customers.

So basically, rates would be rising everywhere.

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

#122

Post by SkyMarshal »

WanderPanda wrote: post #109
SkyMarshal wrote: post #78

Earlier quoted context omitted.

In the GFC, the financial system locked up because banks stopped lending to each other, which is otherwise a primary activity in a working financial system. They stopped because the collapse of Bear Sterns and Lehman Brothers made them realize that anyone could be next and they all had massive counterparty risk with each other. Why lend to someone who could be bankrupt literally the next day? They all had taken on ma…

Maybe the banks should upgrade to trustless systems then? On the otherhand they just should face that they trusted the wrong parties and go bankrupt otherwise the incentive system gets rigged (thats where we ended up nowadays)

Yeah, the alternative was for the Feds to let them fail, then take them into receivership similar to the S&L crisis back in the 80s. But after decades of dismantling Glass Steagal and consolidating into megabanks, they had enough political power this time to orchestrate a bailout.

I'm not sure any technology can solve the fundamental problem, but the post-Great Depression regulatory regime did for decades until it was dismantled in the 80s and 90s. It's no surprise that less than a decade after Graham-Leach-Bliley dismantled the last bits of Glass-Steagal in 1999, that we get another financial crisis similar to the Great Depression. Glass-Steagal mostly worked, and served to decentralize the banking/investment banking/insurance industry.

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

#123

Post by cturner »

superkuh wrote: post #38

Bitcoin's reliance on Stablecoins? I think the wsj is confused and has this backwards. Additionally, like all mainstream media sources, they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin.

Don’t underestimate the importance of market makers - people who create liquidity on the exchanges by constantly resting buy and sell orders on the book, the modern equivalent of the guys on the exchange floor in the bright jackets. Exchanges without market makers lose business to exchanges with market makers. In general, it is rational to trade on the markets with the tightest spreads.

Market makers need mechanisms to move money around and manage risk. When tether did not exist, all this would have been painful, but equally painful for all market makers. This is fine.

Tether created a maybe-good-enough mechanism for bridging conventional money into crypto. Once it existed, then each market maker would have needed to make a decision: use it and get the benefit of it whilst losing sleep at night over its risks, or not use it, lose edge to your competitors, and close up shop. You may find that the market makers hate tether, and recognise it for what it is (wildcat bank) but feel compelled to use it to stay competitive.

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

#124

Post by G3rn0ti »

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 an index tracker exposes you to the risk of falling indices. Using a solid stable coin (DAI) and earning yield using an established lending platform (Compound or AAVE) or liquidity pool (Curve) does not. However, these new financial tools of course have other inherent risks but they are probably smaller than exposing oneself to the wildly fluctuating Bitcoin price.

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

#125

Post by dharma1 »

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…

Why do you prefer USDC to GUSD? They both seem to be 1:1 backed centralised stablecoins, just the Winklebros version hasn’t taken off the same way

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

#126

Post by ttty2 »

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…

What if btc value drops to 20. You are out for 80usd..

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

#127

Post by peteretep »

G3rn0ti wrote: post #124
peteretep wrote: post #50

Earlier quoted context omitted.

> 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 an index tracker exposes you to the risk of falling indices. Using a solid stable coin (DAI) and earning yield using an established lending platform (Compound or AAVE) or liquidity pool (Curve) does not. However, these new financial tools of course have other inherent risks but they are probably smaller than exposing oneself to the wildly fluctuating Bitcoin price.

> a solid stable coin … established lending platform

I think we are probably eons apart on the meanings of the words “solid”, “stable”, and “established” here.

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

#128

Post by lxgr »

gruez wrote: post #30
nexuist wrote: post #28

Earlier quoted context omitted.

> the smart contract for USDC can block any address containing USDC at any time Is this documented anywhere? What's the procedure within USDC to perform this block? Is it just whoever has the right private key can execute this blocking function and propagate it through the blockchain?

>Is this documented anywhere? What's the procedure within USDC to perform this block? https://etherscan.io/address/0xa0b86991c6218b36c1d19d4a2e9eb... The smart contract has a "blacklist" function.

Does the proxy implementation pattern used in this contract actually mean that the owner of the corresponding keys can not only block addresses from holding USDC, but actually swap out the entire implementation, e.g. for one implementing transaction or inactivity fees?

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

#129

Post by mrlaserOO »

lubujackson wrote: post #51
lhorie wrote: post #37

Earlier quoted context omitted.

Honest question. How's Tether imploding different from e.g. a public company suddenly shutting down and its stock price going to zero? I imagine the two scenarios being similar in the sense that anyone holding tether would eat a big loss, but aside from the event obviously affecting investor sentiment, wouldn't it just be more or less business as usual for other coins? As in, couldn't BTC/ETH/whatever people just use…

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…

Ummm how exactly would banks give you 900m for 100m in collateral?! Can you make an example?

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

#130

Post by pasxizeis »

menzoic wrote: post #104
R0b0t1 wrote: post #13

Earlier quoted context omitted.

I've been following cryptocurrencies since their inception. No one who knows anything is investing in or holding fiat based currencies. It may make some people some money, but it is assuredly not going to make you any money, and will probably make you lose money.

Plenty of crypto veterans use stablecoins. The benefits are that its much faster to transfer globally in minutes and works on weekends. There are also high yields from liquidity mining that anyone can benefit from.

I think OP is talking about long-term holders while you are talking about traders.
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