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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#171

Post by beiller »

marcosdumay wrote: post #150
beiller wrote: post #126

Earlier quoted context omitted.

I don't think this is an oracle problem. I watch reviews online for products I want to buy. Seems to work fine. But let's say now legal action is threatened for any negative reviews. What happens to the trust now of online reviews?

It's more than that. Do you read reviews paid by you or by the seller of the product they are reviewing?

I've kinda lost track of the analogy at this point. I'm surprised I was downvoted so much. I didn't have a strong case to begin with. To try and carry on, if I was paying for product reviews like companies do for the rating agencies, I'd expect them to be even more accurate and impartial! If the companies (reviewees) are paying the reviewers (bribes?), I'd expect them to be crap. But companies are not paying Fitch to rate them are they. Other investors are paying Fitch for the supposed impartial review. But since high ratings makes markets go up, and monetary policy is greasing the wheels so that nothing can fail, it caused all ratings to creep up. Because after all the rating are based on empirical data and nothing is allowed to fail (bail out).

Re: Regulators should treat stablecoins like banks

#172

Post by miohtama »

mbesto wrote: post #123
mdorazio wrote: post #104

Earlier quoted context omitted.

Devil's advocate: 2008 was bad because of regulatory failures (specifically deregulation). Lack of transparency was only part of the problem. So if you want to avoid 2008 in cryptocurrency, the answer would be more regulation, not less.

> So if you want to avoid 2008 in cryptocurrency, the answer would be more regulation, not less. To expand on this point. Deregulation with a federal reserve fallback is especially dangerous because it's essentially fake deregulation. When you know that you're too big to fail and the government is going to bail you then your risk to allocate capital effectively becomes zero.

I think the Boeing CEO (or some other airline) was famously quoted for this that they do not need any cash buffers, as the government will always bail them out, no matter what

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3571441

Thus, it’s ok to spend extra cash to stock buybacks and maintain no cash reserves.

Re: Regulators should treat stablecoins like banks

#173

Post by emn13 »

ethbr0 wrote: post #119
beiller wrote: post #110

Earlier quoted context omitted.

Hot take: 2008 was caused by over regulation, resulting in broken incentives for rating agencies and preventing any real bad outcomes from them just rating everything as great.

Finding a trustworthy oracle is always a problem. Either you can let (systemically important) people buy whatever junk they want, or you can mandate a minimum bar. But if you mandate a minimum, who judges what does or doesn't meet it?

The issues weren't with risk per se, nor any minimum bar, but with risky assets dressed up to deceive buyers (and those that audit collateral) into thinking they're not risky.

If something is too complex to interpret: maybe that's not immediately a problem, but it likely shouldn't serve as collateral for a loan (or similar), especially not systemically.

So this conceptual oracle doesn't need to be perfect: it just needs to accept a few false negatives (unnecessarily rejected collateral) in order to ensure there are few false positives (unwisely accepted collateral). Philosophically it certainly feels to me like an easier problem than finding a more generally trustworthy oracle; but these kind of things certainly are tricky.

Re: Regulators should treat stablecoins like banks

#174

Post by miohtama »

sorbits wrote: post #169
xur17 wrote: post #94

Earlier quoted context omitted.

> Blockchains like Ethereum are currently far more transparent than the state-sponsor US monetary system. I hope to live in a society where economic experiments can be executed, new lessons learned, and transparency maintained. If stablecoins are persecuted, the need for cryptographic zero-knowledge proofs will allow these systems to continue with far less transparency. This is the part that excites me about Ethereum…

> By definition, a lot of the projects on Ethereum are a LOT more transparent than the traditional finance world The important stuff is not transparent. For example, how do you know that Tether is backed by real USD? That Binance isn’t manipulating prices via wash trades? That the promises made about various coins are being upheld? etc. Crypto is reliving the era of https://en.wikipedia.org/wiki/Wildcat_banking > Wit…

> The important stuff is not transparent. For example, how do you know that Tether is backed by real USD? That Binance isn’t manipulating prices via wash trades? That the promises made about various coins are being upheld? etc.

You are describing so called centralised finance (CeFi) whereas the most high quality Ethereum projects focus on decentralised finance (DeFi). DeFi tries to break any chains to opaque companies and have all actions happening transparently and auditable on-chain. However ones like Tether murky the waters a lot here.

Re: Regulators should treat stablecoins like banks

#175

Post by sorbits »

miohtama wrote: post #174
sorbits wrote: post #169

Earlier quoted context omitted.

> By definition, a lot of the projects on Ethereum are a LOT more transparent than the traditional finance world The important stuff is not transparent. For example, how do you know that Tether is backed by real USD? That Binance isn’t manipulating prices via wash trades? That the promises made about various coins are being upheld? etc. Crypto is reliving the era of https://en.wikipedia.org/wiki/Wildcat_banking > Wit…

> The important stuff is not transparent. For example, how do you know that Tether is backed by real USD? That Binance isn’t manipulating prices via wash trades? That the promises made about various coins are being upheld? etc. You are describing so called centralised finance (CeFi) whereas the most high quality Ethereum projects focus on decentralised finance (DeFi). DeFi tries to break any chains to opaque companie…

> DeFi tries to break any chains to opaque companies and have all actions happening transparently and auditable on-chain

How can you create anything of value¹ by limiting yourself to on-chain transactions?

If value is created, the transaction would cover something happening in parallel, and your transparency does not extend to that.

¹ I do not consider lotteries or similar zero-sum games as value creation, but those can be 100% on-chain.

Re: Regulators should treat stablecoins like banks

#176

Post by jasonwatkinspdx »

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…

Re your sciencedaily link, you are misinterpreting that in context.

I suggest reading David Graeber's book Debt, the first 5000 years. He is the world authority on the topic.

A short summary:

Contrary to the imagined assumptions of Adam Smith, prehistoric humans operated via gift economies. This makes sense because they lived/survived in smallish tribal bands that required cooperation. This was even true of humans before our species split from our hominid ancestors. This is one reason why instincts around fairness and reciprocal empathetic behavior are so strong within us. For hunter gatherer bands they were essential to survival.

The first thing that can be called money appeared in temple complexes in the Levant, during the neolithic revolution, thousands of years before your article's discussion of trade behaviors in Europe. These were entirely about a social contract and central authority. Those that lived in the surrounding vicinity of the temple were required to bring contributions, eg a goat herder would bring goats. The temple would record their contribution, typically denominated in units of weighed grain. This recorded the temple's debt to the herder, who could later claim the grain as needed. In turn, the herder's contribution would be used to support the specialized people building and operating the temple, growing the grain, etc. In essence this was the first government and tax redistribution system.

It's a fascinating book if a bit slow due to the level of detail in places. It will disabuse you of many assumptions people have about the history of economics that are directly contradicted by archeological evidence or later, written history.

As to your second point, we have ample historical evidence of how that goes wrong.

Re: Regulators should treat stablecoins like banks

#177

Post by jcaldas »

In my opinion, regulators have a too-big-to-fail problem here. Tether is known to be used for artificially inflating the crypto market in collusion with certain exchanges. There is a lot of documentation on this, the following two articles are a good start:

https://theodoregreenbaum.medium.com/the-crypto-time-bomb-is...

https://www.bloomberg.com/news/articles/2021-07-26/tether-ex...

If news suddenly come out about Tether being formally accused by the Department of Justice, the market may react in panic and things might get ugly. As an anecdote, I have a friend who told me she put a significant amount of her life savings into "etherium and carnado" (sic). There are millions of people like this who will get absolutely crushed.

I don't see a non-painful solution here. The regulators were too slow and have allowed a monster to be created.

Re: Regulators should treat stablecoins like banks

#178

Post by shawabawa3 »

zakember wrote: post #154
sorenso wrote: post #96

But if they were treated like real banks, one stable coin would be even less backed by real cash than right now.

Sorry for my ignorance, but can you please explain what you mean by this?

That banks are only required to keep 10% of reserves in cash (maybe even less now?) And the rest can be loaned out

Re: Regulators should treat stablecoins like banks

#179

Post by noelsusman »

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…

I don't think financial innovation is the answer to preventing another financial crisis considering that's exactly what caused the 2008 crisis.

Re: Regulators should treat stablecoins like banks

#180

Post by jbgt »

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…

If you think DAI is exciting, check out Liquity : it's entirely managed by smart contracts and economic mechanisms, with no governance managing interest rates like with Maker.

One Explainer video with the founder: https://www.youtube.com/watch?v=bXLTE-5BkhA

I think DeFi is really getting interesting.

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