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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#81

Post by namdnay »

gunshai wrote: post #71

>Tether, has issued $62bn-worth of tokens which it says are redeemable for a dollar apiece. But of the assets backing the tokens in March only about 5% were cash or Treasury bills Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper: Commercial Paper and Certificates of Deposit2 $30,807,654,349 Cash & Bank Deposits3 $6,282,756,692 Reverse Repo Notes4 $1,000,662,458 Treasury Bills5 $15,279,528,705 Su…

Careful, commercial paper is most definitely not the same as cash or treasury bills. It could be AAA, it could be BBB-

Wasn't there a story about an independent audit that was cancelled or something? I remember the weird assertion that they couldn't disclose whose commercial paper they were holding, which I've never heard before

Re: Regulators should treat stablecoins like banks

#82

Post by Aunche »

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…

The difference is that PayPal actually lets you exchange your PayPal balance for real US dollars

Re: Regulators should treat stablecoins like banks

#83

Post by JumpCrisscross »

CryptoPunk wrote: post #36
nonameiguess wrote: post #30

Earlier quoted context omitted.

The person you're replying to isn't talking about the housing market collapse. The credit crunch that happened after was the much bigger threat to the global economy, and that was entirely caused by businesses operating with zero cash due to the assumption that commercial paper and other types of short-turnaround overnight loans were close to risk free even though they were not.

The housing market collapse is the reason for the misassessment of risk, and the over-extension of credit. Mortgage-backed securities were considered AAA assets, which is why so little in cash reserves were maintained. >>Had Tether been around in '08, it would have been accumulating hordes of that stuff to back itself up. That's irrelevant, because every one, including regulators, would have considered that adequate…

> Mortgage-backed securities were considered AAA assets, which is why so little in cash reserves were maintained

That's fine and irrelevant. Had Tether been around in '08, it would have been accumulating hordes of that stuff to back itself up.

Re: Regulators should treat stablecoins like banks

#84

Post by arcticbull »

JumpCrisscross wrote: post #7
simmerup wrote: post #4

Earlier quoted context omitted.

So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?

> if 0.26% of tether is withdrawn into currency the coin would collapse If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid. But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run.…

This is your regularly scheduled reminder that no US persons are permitted to redeem Tether according to their terms of service. Further according to their terms of service only designated customers are permitted to redeem Tether, they at their sole discretion make the determination as to who is the designated customer, they are permitted to delay redemptions arbitrarily, and they are permitted to fulfill redemptions in-kind with whatever garbage backing they may have instead of dollars. [1]

Their “reserves” and ratios and backing mean basically nothing since nobody’s ever going to be permitted to redeem a meaningful quantity anyways - while at the same time being too big to fail in the crypto industry. Exchanges know this.

They are chuck-e-cheese tokens used to facilitate capital flight from mainland China, and to provide 85% of all trading volume in the crypto space. $4.9B of BTC daily trade volume vs $0.17B for USD proper. [2]

[1] tether.to/legal

[2] https://coinlib.io/coin/BTC/Bitcoin

Re: Regulators should treat stablecoins like banks

#85

Post by archontes »

JumpCrisscross wrote: post #7
simmerup wrote: post #4

Earlier quoted context omitted.

So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?

> if 0.26% of tether is withdrawn into currency the coin would collapse If 0.26% of Tether is withdrawn, it would need to start liquidating assets. That will, most of the time, be fine. Commercial paper is exceedingly liquid. But sometimes, the liquidation will prompt a price fall. This is a fire sale. That, in turn, prompts more redemption, as holders of Tether grow concerned about its stability. This is a bank run.…

Tether doesn't have any liabilities, because it has no obligation whatsoever to redeem tethers for dollars.

Re: Regulators should treat stablecoins like banks

#86

Post by JumpCrisscross »

marcusestes wrote: post #72

Regulating stablecoins like banks would absolutely have to involve reform of the OCC, whose willingness to actually issue new banking charters has slowed to a near halt in recent years. https://wp-vip.law.columbia.edu/wp-content/uploads/sites/2/2... Many fintechs would be more willing to submit to banking regulation if they felt there was a sane and cost effective path to, you know, actually becoming a bank.

> stablecoins like banks would absolutely have to involve reform of the OCC, whose willingness to actually issue new banking charters has slowed to a near halt in recent years

The article calls for regulators "to subject stablecoins to bank-like rules for transparency, liquidity and capital." Not to literally require Tether charter itself as a bank. Think money market funds or PayPal versus Wells Fargo.

Re: Regulators should treat stablecoins like banks

#87

Post by xyzzy123 »

ogogmad wrote: post #63
dcminter wrote: post #34

Earlier quoted context omitted.

Paypal within the EU is indeed a bank.

Who uses it? Aren't debit cards and online bank transfers more common there?

You can always punch in your digits but Paypal have some great merchant integrations on a wide variety of ecommerce platforms (including ebay...). They're worth studying to this day if you're a startup in the "ecosystem" space.

Everyone hates them but the stickiness is real.

Re: Regulators should treat stablecoins like banks

#88

Post by jcranmer »

SilasX wrote: post #11
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.

Banks are now required to have 0% of deposits as cash.[1] It’s funny whenever people start to get outraged at seeing fractional reserve banking in any context besides where we’ve ignored it and accepted it. [1] Citation for those who missed this development: https://www.eidebailly.com/insights/articles/2020/4/federal-...

As mentioned in other comments, there are other mechanisms than the reserve requirements by which banks are required to have deposits in cash.

Re: Regulators should treat stablecoins like banks

#89

Post by csomar »

arcticbull wrote: post #75
chroem- wrote: post #67

Earlier quoted context omitted.

Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.

It simply is not. Retail banking customers are able to withdraw 100% of their balances and have been for almost 100 years thanks for the existence of the FDIC. Nobody has lost a single dollar to a bank run since the FDIC was instituted after the Great Depression. Even in 2008 when WaMu went under. Not one dollar. All retail banks in the United States are backstopped by the FDIC and the FDIC is backstopped by the fede…

FDIC guarantees up to $250k and also kicks in after the bank goes under. I'm guessing it should take some time (a few years?) until the FDIC reimburses the people who lost money.

Re: Regulators should treat stablecoins like banks

#90

Post by JumpCrisscross »

chroem- wrote: post #67
FabHK wrote: post #54

Earlier quoted context omitted.

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...

Capital requirements are for something else. We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.

> We're talking about retail customers being able to withdraw their cash, in which case the reserve requirement is the correct number.

It's not, because the Fed will--by law--freely convert reserve assets into cash at pre-determined ratios. Reserve requirements are an anachronism.

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