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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#51

Post by username_my1 »

MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

The problem is the promise, bitcoin and other "nonstable" crypto don't promise a fixed dollar value, similar to gold if you will.

But if a crypto claims that it has a fixed currency value, then like banks (which they also say they have a fixed dollar reserve) it has to be regulated by the issuer of that currency.

I don't see any problem in regulating stable coin.

Re: Regulators should treat stablecoins like banks

#52

Post by JumpCrisscross »

SilasX wrote: post #9
JumpCrisscross wrote: post #5

Earlier quoted context omitted.

> stop advocating that people be treated like children Stablecoins are money market funds. Those initially came about due to regulatory limits on deposit-account interest rates and risk thresholds. They nearly took out the real economy in 2008. Stablecoins are recreating that structure, guaranteeing a peg against a portfolio of risky assets inextricably tied to the mainline financial system. (This is a summary of the…

The interest bearing accounts on the stablecoins are the (edit: things analogous to) MMFs, not the stablecoins themselves — at least for backed ones like GUSD and USDC. Edit: not sure why a basic point is downvoted, I updated to clarify.

> interest bearing accounts on the stablecoins are the (edit: things analogous to) MMFs, not the stablecoins themselves

Sorry, I was speaking metaphorically. Stablecoins are collateralized by money market assets. This backs their "guarantee" of convertibility. Money market funds used to provide a similar liquidity-risk transformation guarantee--they would never "break the buck," i.e. trade for less than $1/unit. Until they did in 2008, which created a credit crisis in the money markets as those funds all fire sold commercial paper at the same time to maintain their peg.

So we changed the rules. No fake pegs. If you find yourself in a credit crisis, you trade your fund at 98¢ instead of incurring 50¢ of liquidation costs to defend a magic number. In exchange, no marketing your funds as being as stable as deposit accounts.

See the rhyme?

Re: Regulators should treat stablecoins like banks

#53

Post by user-the-name »

AcerbicZero wrote: post #32

Why should we let obviously captured regulators attempt to wrangle the only thing that even remotely looks like competition to their captors’ core business models?

You would rather have a handful of ex-criminals run a supposed $60 billion "currency"?

How is any of that better?

Re: Regulators should treat stablecoins like banks

#54

Post by FabHK »

chroem- wrote: post #12
MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

As opposed to banks in the US, which legally have a 0% reserve requirement. [1] [1] https://www.federalreserve.gov/monetarypolicy/reservereq.htm

That is misleading. A more relevant number is the capital requirement, which is between 7% and 13% currently for US banks, if I'm not mistaken, corresponding to leverage of 8 to 14. Much more benign.

https://www.federalreserve.gov/newsevents/pressreleases/bcre...

Re: Regulators should treat stablecoins like banks

#55

Post by lottin »

nonameiguess wrote: post #20
MattGaiser wrote: post #2

> With estimated leverage of 383-to-1, Tether would be unable to honour all its tokens after losses of just 0.26%—a safety cushion that regulators would never allow at a bank. So even if they are telling the truth, it is still on the edge.

This is unfortunately no longer true. The Fed set the required reserve ratio to 0% last March. They still incentivize holding cash reserves by paying interest to banks roughly equal to what they could get by holding something like commercial paper, effectively giving banks free money since there isn't actually any risk, but they technically no longer require banks to hold any cash at all. Of course, the Fed allows th…

Do you understand that cash reserves and regulatory capital are two different things?

Re: Regulators should treat stablecoins like banks

#56

Post by [deleted] »

emn13 wrote: post #44
chroem- wrote: post #31

Earlier quoted context omitted.

> Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. The practical implication of solving large scale bank failures with mass currency printing is hyperinflation. You would only get your money back in nominal terms, but its pu…

The fed has expanded money supply to react to shocks before, and there was no hyperinflation. Even if clearly at some point, given enough money-printing, inflation would result, there's no reason to assume it's some binary thing; either hyper-inflation ala zimbabwe or normal inflation. It's more likely you'd see gradual inflation, and that the amount of money printed influences how much inflation results - so assumin…

[deleted]

Re: Regulators should treat stablecoins like banks

#57

Post by shadowgovt »

CryptoPunk wrote: post #48
toomuchtodo wrote: post #27

Earlier quoted context omitted.

A currency is a socioeconomic compact between capital and labor, intermediated by subject matter experts (ie the central bank) and government. > Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency. The economy functioning is of greater benefit to the whole than the value to currency hoarders (remember, it's a currency, it's meant for exchange not for va…

>>A currency is a socioeconomic compact between capital and labor, intermediated by subject matter experts (ie the central bank) and government. Currency is an asset with a particular use-case. Its consumers do not enter into some elaborate agreement (compact) in order to use it. They use it because it's useful. Currency predates the government: https://www.sciencedaily.com/releases/2021/05/210506174103.h... It arose…

Correct.

The centralized authorities protect the economy against some failure-modes that a distributed process is vulnerable to (currency scarcities, tampering, panics, large-scale theft). They introduce other problems. Whether one thinks they introduce more problems than they fix is pretty much the defining factor on where one stands regarding the utility of fiat currencies.

Re: Regulators should treat stablecoins like banks

#58

Post by FabHK »

jcranmer wrote: post #39
SilasX wrote: post #25

Earlier quoted context omitted.

Oh, and Tether is holding assets that wouldn’t meet those requirements? Sorry, wasn’t sure if you meant that as a difference.

No, Tether is not. The equity and capital buffer requirements are somewhat more complicated to explain simply, but the end result is that a bank needs at least ~8% of cash outright to meet those requirements. Tether has less than 1/10th the amount of cash it would be required to have were it a bank.

Agreed. At most 1/30 of what would be required.

Re: Regulators should treat stablecoins like banks

#59

Post by wins32767 »

IG_Semmelweiss wrote: post #41
toomuchtodo wrote: post #27

Earlier quoted context omitted.

A currency is a socioeconomic compact between capital and labor, intermediated by subject matter experts (ie the central bank) and government. > Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency. The economy functioning is of greater benefit to the whole than the value to currency hoarders (remember, it's a currency, it's meant for exchange not for va…

>>>>> The economy functioning is of greater benefit to the whole than the value of currency hoarders maintaining its value. If you want to preserve wealth, own things you expect people to trade their time or capital for into the future. Retirees on a fixed income; immigrants, the poor, and people with no access to credit would like to have a word with you

I hear that poor people and those with no access to credit also do particularly well when the economy goes into depression (as would happen with massive bank failures).

Re: Regulators should treat stablecoins like banks

#60

Post by [deleted] »

jyu wrote: post #29

Paypal is not a licensed bank. Square, whose IPO was 11/19/2015, only got their bank license in 2020. Why should cryptocurrency be under the purveyance of banking regulations? Cryptocurrency is pulling back the iron curtain and revealing the real Wizard of Oz when you consider unequal regulatory treatment and unequal enforcement efforts. Remember BOA robosigning fake mortgages and commiting widespread fraud? Remember…

[deleted]
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