Report on Stablecoins [pdf]

Individuals will be told they're not customers by Tether (this happened on Twitter a while back, someone set out to prove you could and Tether stonewalled them, so he deleted his account). They're offered a piddly USDT:USD market pair on a few exchanges, like Coinbase and Kraken, as a distraction. There, they can sell their USDT to folks trying to buy it (for instance, to fund a DeFi position) or the exchange obo Tether, Inc. to keep the charade going.

Only institutional parties like exchanges, Alameda and Cumberland are "deemed customers" and they'll never redeem because they know they can't.

Everyone's in on this. I think only a court-ordered exchange liquidation could possibly end the game, like a Binance collapse for instance.

Just to be clear, my point was that the classical definition of a "store of value" isn't something that goes up exponentially and flails around wildly at the whims of folks trying to liquidate leveraged positions.

It's broadly regarded as something you can purchase and expect to get your money back. Not a ton more, not a ton less, roughly what you put in. I don't think there's a single world in which any cryptocurrency falls into that definition today. Might it? It could. I don't think it will. But that's speculation, what's not speculation is that it's not one today.

The "store of value" narrative was coopted once folks in the community realized it couldn't ever actually sustain more transactions than required by a small Costco.

> Gold and other precious metals are terrible stores of value, their dollar values are incredibly volatile...

They're dramatically less volatile than cryptocurrencies which does make them better suited, however I do not personally advocate for owning metals - for exactly the reasons you rightly describe.

> Most central banks aim for 2% inflation per year, literally guaranteeing any amount to become worthless over time if stored in currency. (vs bonds or some other appreciating asset)

Modern economies intentionally split long-term stores of value from short-term medium of exchange. Currencies are inflated slowly to incentivize investment, and to maximize employment along the Philips curve. This is the charter of the Federal Reserve and most other world central banks.

> Just what. Bitcoin is strictly positive sum under any sane definition. Unlike MLMs or pyramid schemes, Bitcoin never alleges to return anything other than Bitcoin.

It doesn't allege a return, however literally every frothing at the mouth holder of crypto will allege it for you, as they are incentivized to do. Bring in more people, you get wealthier. Sound familiar? It's a decentralized MLM. It's negative-sum because miners constantly extract $60 million dollars per day, $21B per year in block rewards. These are liquidated and cause negative price pressure, socializing what amounts to a $250 transaction fee. [1]

> Neither do currencies. They're just currencies.

Which is why they don't go up in value. You can't have it both ways :) dreadful currencies go up astronomically in value, because this creates a deflationary spiral. Dreadful currencies go down a ton in value because it doesn't offer you time to productively allocate. A good currency averages a low, predictable rate of inflation.

> ... tamper-proof ledger is useful, and thus has "intrinsic value" just like toilet paper or gold.

We have yet to find a single use for it. All you can do is look at your spreadsheet cell in a web browser, or get someone else to buy it from you. You can't do anything with it. At least you can turn gold into electronics, like bitcoin miners.

[1] https://www.ic.unicamp.br/~stolfi/bitcoin/2020-12-31-bitcoin...

I just don't see how Tether refusing to honor redemptions makes it more resilient to a run in progress, rather than less. If nobody wants to buy 1 USDT for a dollar, the peg will break all the same. If Tether stepped in as a buyer of last resort, that would make it more resilient- but if it doesn't, that worse for the peg, not better.

It's better for anyone with physical custody of the Tether assets I guess (they have a pile of gold to Scrooge McDuck dive into) but the currency is even more boned than if they'd propped the market up by buying Tethers back.

A 100% collateralized stablecoin that just hands everyone back their dollars if they ask can survive anything, a 50% collateralized one can spend a lot of it back into the market to prop the price up, at least for a while. But if Tether can't or won't, that's going to make maintaining the peg a whole lot harder!

Beyond that, you are correct of course!