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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#131

Post by scotty79 »

Zamicol wrote: post #74

Firstly, Tether is rat poison. Unfortunately, newcomers to the space identify "stable coins" = "tether" or wrongly assume that other stablecoins share similar mechanisms. There are many alternatives that operate radically differently in the nascent space. DAI is immensely exciting. Stablecoins like DAI are interesting experiments that could powerfully create new online economies. Blockchains like Ethereum are current…

Why are stable coins interesting?

It's basically a thing guaranteed by single entity that promises that if the price drops they will buy tether at personal loss.

It's as safe as any pre-crypto, single company e-currencies. All of which died.

The only thing they have going for them is that they managed to place thrmselves as currency of the crypto market.

Re: Regulators should treat stablecoins like banks

#132

Post by cinquemb »

xur17 wrote: post #35
gruez wrote: post #22

Earlier quoted context omitted.

>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. Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency.

But this means that all users of USD are providing an insurance pool for the banks for free. Doesn't quite seem fair. There are some decentralized stablecoins (stablecoins backed by crypto assets + market rules that ensure they keep the peg) that have explicit insurance pools + rewards for being part of that insurance pool. For example, Liquity [0] allows users to deposit the stablecoin and earn rewards + favorable l…

> There are some decentralized stablecoins

Most people clamoring for regs around stablecoins haven't gotten a chance to wrap their minds around this yet… nor have most of them considered the $ demom "cash and cash equivalents" that are on banks balance sheets not domiciled in the US, who have even smaller cash flows than some centralized stablecoin issuers folks love to pick on…

Re: Regulators should treat stablecoins like banks

#133

Post by onlyrealcuzzo »

dangerlibrary wrote: post #37
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…

It is extremely unclear what, if anything, you are arguing for or against, other than that banks have recently done some bad things. It seems like you might be against regulating stablecoins as banks, but you also appear to be arguing for harsher punishments for banks that misbehave? Or something?

It's interesting that people think crypto markets have little-to-no fraud or misbehavior when they AREN'T regulated, but banks (and all things financial) are regulated exactly to prevent this.

It's almost like these people must think that regulating banks is what causes the misbehavior, not the other way around.

Re: Regulators should treat stablecoins like banks

#134

Post by vkou »

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.…

> Commercial paper is exceedingly liquid.

If Tether actually owned any commercial paper, they'd be the biggest player in the commercial paper space. Nobody's ever heard of them, and they don't own 30 billion dollars of it.

What they do own are paper promises from other companies that are controlled by them. Which are worthless. I own a paper promise from my dad to pay me a trillion dollars, that doesn't make me the richest man in the world. [1]

[1] Until I leverage it into minting a 'commercial-paper-backed', unredeemable, unaudited 'stable'coin.

Re: Regulators should treat stablecoins like banks

#135

Post by SilasX »

JumpCrisscross wrote: post #52
SilasX wrote: post #9

Earlier quoted context omitted.

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. Unti…

No, I don't see the "rhyme" about how USDC and GUSD lack actual cash to back them 100%, because they do in fact have such cash.

Bottom line, you're painting with too broad a brush to say all stablecoins work like a MMF. At most, you're describing particular ones like Tether and Dai.

Re: Regulators should treat stablecoins like banks

#136

Post by FabHK »

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.

You're not entirely wrong, but we need to compare apples to apples:

Capital = excess of assets over liabilities => capacity to satisfy creditors medium term (solvency)

That's at least 7% to 13% of the balance sheet for banks, and currently 0.26% for Tether.

Reserves = cash (and equivalents) in the vault => capacity to pay out immediately (liquidity)

Minimum reserves required used to be 3% to 10% of deposits, if I read this correctly, but are now 0% indeed, as you point out. Actual bank reserves, however, are much larger than what is required, even when the requirement was > 0 [see 1]. Tether holds about 5% in cash or Treasury bills.

So it seems that banks fare much better on both ratios than Tether.

[1] https://www.federalreserve.gov/releases/h3/Current/

Re: Regulators should treat stablecoins like banks

#137

Post by SilasX »

eightysixfour wrote: post #79
SilasX wrote: post #11

Earlier quoted context omitted.

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-...

Yes, because the areas where we ignore and accept it are highly regulated and insured as a result of hundreds of years of learnings at this point. People react negatively when they see it outside of that context because it is something we have repeatedly seen fail and cause instability. This isn't hard to understand.

Yes, that is a valid distinction to make, if the arguments/concerns around Tether were merely "hey, let's make sure regular banking regulation extends to this organization as well, to make sure it's all going in tip-top shape".

But that's not why people bring up the figures. They're acting like it's inherently shady to have less than 100% (or 3, or whatever) cash reserves for something that ostensibly "has your money on demand", and such a scheme is inherently unsustainable, even though this is exactly what banks do.[1]

Be careful not to equate "one technical distinction that makes sense" with "the the things the hive mind is actually outraged about".

(Sorry, would have responded sooner but I got a "you're posting too fast, slow down" error.)

[1] Fortunately, this article is focusing on the point about just extending regulation, but every other time this comes up, the figure is supposed to provoke outrage about "how can they not have our cash ready to go?"

Re: Regulators should treat stablecoins like banks

#139

Post by bufferoverflow »

dalbasal wrote: post #122

Turning the proposition around, why not have regular banks, even the Bank of England. Issue an official GBPCoin, or a banking framework that does the same thing. Have whoever needs stablecoin use that. That is, stablecoins are basically USD accounts, just with the actual bank receipts (the coins) circulating. Make that a form of deposit account, and regulate and insure it like any other deposit account. It presents s…

What's the point of that? Using cryptocurrencies frees you from the possibility of your funds being frozen or seized or even detected/associated with you.

GBPCoin would be no different from using GBP on a bank account.

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