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Report on Stablecoins [pdf]

home.treasury.gov

131–140 of 697 posts

Re: Report on Stablecoins [pdf]

#131
post #47

This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the pr…

> Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the price of Etherium drops more than 1/3. Etherium dropped by half back in May 2021, but recovered. DAI could have crashed at that time if it faced a net outflow. It didn't, though.

DAI didn't collapse because the drop in Ethereum value wasn't sudden. As the price falls, bots are allowed to liquidate your debt and keep the overall collateral ratio healthy.

Re: Report on Stablecoins [pdf]

#132

Earlier quoted context omitted.

There's a canonical toxic response to this = HFSP. I don't like that because we're all still learning. I hope you see how the money printer is making scarce assets outside of Govt manipulation more valuable. The Bitcoin rabbit hole goes deep. You're right in that stablecoins might actually be worthless in the long run since they're backed by USD which might be worthless in due course of time. Zoom out of the day to d…

>>There's a canonical toxic response to this = HFSP. I don't feel this was your actual response, but I still need to address it because I don't understand how anybody ever can have that as a remotely legitimate, thought-out response. How can any financial instrument/currency make everybody "rich", in any real terms? If you gave everybody million USD tomorrow, it'd crash so bad that we'd be right back where we came fr…

There's a bunch to unpack here, on both sides.

To start with, I'll say that I agree with the mainstream view that cryptocurrency isn't actually creating wealth, in the sense of non-financial real goods that improve people's lives. It's redistributing it. Everybody's crypto gain comes at the expense of somebody else's crypto loss.

I'll also throw in that folks who say "HFSP" are often the losers, because they're the ones who FOMO in because of greed and ego at the top of the cycle and then panic-sell at the bottom when they actually become poor. The folks who are making millions in crypto are the ones who buy at cyclical bottoms - 2012, and 2015, and 2019 - and hold on to sell at the tops, when everybody else is making fun of the folks sitting on the sidelines.

However, they're on to something. Imagine that you're inside a group with superior military technology - the Mongols in 1200, for example, or an American settler in 1840 - and you're looking at the people you are about to conquer. Or less bloodily, you're going into software in 2002, aware that a computer program will replace the jobs of whole industries, and trying to figure out which profession to go into. It's much better to be on the inside of change than on the outside.

They aren't necessarily wrong, either - they're correctly perceiving that the fiat currency system is unsustainable and is its own Ponzi scheme, and creating an alternative Ponzi scheme to recruit participants into. Game theoretically, if you have an inflationary currency and a deflationary currency, it makes sense for everybody to spend the inflationary currency and save the deflationary currency (Gresham's Law) which further drives up the relative price of the deflationary currency so long as there's an excess of savings available. If we enter a time of shortages (which we might), then the value of the deflationary currency will collapse (since everybody needs to spend money, and merchants are accustomed to taking the inflationary currency) - but if that happens, Bitcoin and its electricity & Internet demands are screwed anyway. In the meantime, as long as labor and savings both remain abundant, holders benefit at the expense of new adopters.

The actual claim isn't that crypto is going to make everybody's life better. The claim is that it's going to make the life of holders better, at the expense of late adopters. People can't come out and say that directly - "Hi, I'm going to fuck you over and take all your wealth". I'm sure that'd go over great with the general public. So they say it in coded egoisms like "have fun staying poor", where you can write it off as somebody blowing off steam.

Re: Report on Stablecoins [pdf]

#133

Earlier quoted context omitted.

Risk is that a tether run causes all of crypto to collapse, not just USDT. How many actual dollars are in the system? Everything real has been exfiltrated through electricity bills, taxes and early adopters selling, the entire crypto economy is a hollow shell, leveraged on retail deposits.

Exactly. Ultimately cryptocurrencies are a negative-sum game in that they take in real money and just move that money around, while spending some on overhead. In contrast, imagine investing in, say, a new fast-food franchise joint. They money you put in there is used to acquire assets that are used to produce goods that people will pay to consume. If it's a well-run business, the value of the outputs will be more tha…

Humanity is just a negative sum game in that we take in real resources and just move those resources around and then die, all while increasing entropy of the universe.

Re: Report on Stablecoins [pdf]

#134
post #47

This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the pr…

This is why I'm excited about Djed ( https://djed.xyz ). Input Output Global (creator of Cardano) has been researching stable coins and drafted a pretty extensive white paper on their solution ( https://eprint.iacr.org/2021/1069.pdf ). The white paper also include a mentions for how they will prevent bank runs.

I read the first two sentences and immediately pondered "so how could one profit if they knew which volatile coin the bank kept as it's reserve?"

Re: Report on Stablecoins [pdf]

#135
post #57
post #47

This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the pr…

Is Dai similar to Gemini's GUSD stable coin? It too is backed by Etherium. I think Gemini is paying 8 or 9% APR for holding. Where is that money coming from? Are they loaning out for a higher rate than that?

Some of it is likely them promoting the use of their stablecoin (paying out of pocket) while a lot of it probably comes from lending it out at higher rates. It is VERY easy to make more than 8-9% on stablecoins.

Re: Report on Stablecoins [pdf]

#136
post #127
post #49

All these coins are proven to be worthless. When speculation is making everyone money, the money isn't worth much. Edit: Love the immediate fear downvote. No one wants to hear their gold is really just shiny dirt.

Amazing how many people are die hard advocates of being closed minded. The net market for crypto hits over a trillion dollars, and you still say things like this declaring they are proven to be worthless. This is posted on a report by the US government on a technology that is effectively a digital wrapper to use the US dollar easily online. How is there no worth in that? Out of curiosity, what would it take to change…

Monero and other privacy coins have some real utility for enabling drug sales, tax evasion and ransomware. In terms of above-board use cases, I'm deeply skeptical.

Re: Report on Stablecoins [pdf]

#137

"If well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options." Anyone else find it bizarre that the solution to slow payments might turn out to be distributed ledgers based on proof of work? It feels like the last thing you'd expect - especially since we're starting from a position of managing money through trusted centralised authorities. It's a…

All traditional methods use gatekeepers that control the flow of money. If you can't do what you want with your money is it really yours? The Trustless nature of BTC involves a seeming waste of energy, but you get a lot in return (like ownership of your money).

Sure, but my point was not really about trust. My point is that speed is easier to achieve without Blockchain than with it. It's strange that the centralised solution is slower.

Re: Report on Stablecoins [pdf]

#138

Earlier quoted context omitted.

> Clearly, the coins have value because someone out there feels like paying money for them. That's not a great definition of worth. Is the correct value for a Ponzi scheme really determined by the most recent dollar they took in? I'd say not.

It's the main definition of worth that is used when discussing the value of commodities in economics on the internet.

I certainly agree that worth and current market price are correlated. But I disagree that they're definitionally the same.

Indeed, pretending they're equivalent is a great way to lose a lot of money. I used to work for financial traders and I got some very fat bonus checks paid for by people who confused the two during high-volatility events while our traders stayed more flexible.

Re: Report on Stablecoins [pdf]

#139
post #82

Earlier quoted context omitted.

Do you have any thoughts on how you would do that? Isn't that as practical as outlawing Bitcoin?

They can make it illegal to buy and sell these stablecoins. The exchanges where the stablecoins are bought and sold would have to delist these coins or face criminal action.

someone has never heard of uniswap

Re: Report on Stablecoins [pdf]

#140
post #47

This is good. The backing of stablecoins is a very real issue. As the Treasury points out, there's a very real possibility of a run. Two stablecoins have crashed so far, SafeDollar SDO, and $TITAN. They went all the way to zero. Can Tether survive a net outflow? Probably not. They don't have the collateral. Dai is really a derivative of Etherium. Dai is backed by Etherium at 150%. So value in Dai is at risk if the pr…

Tether can survive a net outflow because Tethers aren't redeemable in that way. If you show up with 1M USDT, they won't give you $1M USD.

It'll have to collapse on exchanges with more sellers than buyers, and to determine how that happens you need to actually understand what specific mechanism underlies how the peg is maintained.

I suspect Tether is all crypto-backed debt issuance which is denominated in real $USD which gives the counterparty incentive to maintain the peg on exchanges.

It'll likely fall apart when crypto falls apart and exchanges have already failed and those counterparties have already gone broke. Tether imploding will probably come after crypto is in the middle of a collapse and be more of a symptom and an accelerant. I doubt that Tether detonating will be the first sign of trouble.

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