Report on Stablecoins [pdf] • Hacker News Board

Re: Report on Stablecoins [pdf]

#441

Post by nanexcool » Tue, Nov 02, 2021, 2:43 AM UTC

Animats wrote: 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…

You misspelled Ethereum 4 times.

Dai is now backed by a lot more tokens than just Ether, and 150% is really the minimum to avoid liquidation (145% now).

https://daistats.com

Re: Report on Stablecoins [pdf]

#442

Post by wpietri » Tue, Nov 02, 2021, 2:44 AM UTC

jkhdigital wrote: post #426

arcticbull wrote: post #223

Earlier quoted context omitted.

It's a strictly worse monetary system by any measure. It's massively more expensive to transact, it's unbelievably inefficient - requiring as much power as Thailand and generating as much e-waste as the Netherlands to scribble 2-3 tx/sec into a ledger. That's 60 days of power for the average US household and 1 iPad of e-waste per transaction . [1] [edit](97% of all mining hardware will be thrown away without ever win…

> 97% of all mining hardware will be thrown away without ever winning a single block reward And fewer than 50% of Thoroughbred horses ever win a single race. This is a silly clickbaity statistic and you know it. Come on, you're better than this arcticbull ;-)

Horse racing is actually a pretty good analogy here, in that it's essentially pointless and an awful lot more money goes in than comes out. The big difference is that at least horse racing produces a fair bit of entertainment value, and that a lot of people truly love their horses.

Re: Report on Stablecoins [pdf]

#443

Post by stepanhruda » Tue, Nov 02, 2021, 2:45 AM UTC

thehappypm wrote: post #355

hjorthjort wrote: post #353

Earlier quoted context omitted.

Not really. The point is: there's always someone who has a debt in DAI they need to pay off. If they thought the dip would go even further , they would wait longer, because to them, the DAI does have value: it is what they need to get their hands on to get their collateral back.

What if they think DAI is going to go to $0?

Sure, if more people who hold DAI thought it would than it wouldn’t, it would be a problem. At this point there are so many arbitrage bots and protocols on top that it won’t even budge to 0.95 though, because this incentive balance has proven to be solid. The main downside really is that it’s overcollateralized by assets in 2x or so value.

Re: Report on Stablecoins [pdf]

#444

Post by bedobi » Tue, Nov 02, 2021, 2:47 AM UTC

arcticbull wrote: post #396

bedobi wrote: post #381

Earlier quoted context omitted.

I'm no frothing at the mouth crypto advocate or fiat currency hating conspiracy theorist, but whatever you're trying to say, and the article you link to, seems like complete nonsense to me, and your snarky recommendation to "read up on what a store of value is" is silly. > A store of value is an asset that maintains its value, rather than depreciating. Value is just what others are willing to pay for something at a p…

> ... and the article you link to, seems like complete nonsense to me, and your snarky recommendation to "read up on what a store of value is" is silly. 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 a…

> 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.

Just because idiots abuse cryptos for baseless manias doesn't make the underlying technology or idea or thing bad, nor a pyramid scheme or an MLM. You could say the same thing about property, art, vintage cars, any number of things that are also not pyramid schemes or MLMs. Bitcoin is definitely experiencing baseless manias, but it's very clearly not a MLM or pyramid scheme.

> 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.

Agree this is bad but that's an artifact of what people are doing with Bitcoin, not an inescapable fundamental quality of Bitcoin. Bitcoin can and for a long, long time used to run just fine on comparatively little energy and transaction costs measured in cents. More energy efficient protocols (and those exist now) can comfortably accommodate orders of magnitude more transactions than Bitcoin for orders of magnitude less energy. (I guess if you wanted to calculate in dollar terms the "intrinsic value" of Bitcoin, it would be the equipment and energy cost of running a comparable or better blockchain, which could possibly be what a couple of grand per year?)

> You can't have it both ways :)

I'm not making claims about whether Bitcoin (or any other crypto) is a currency, or a good currency. But they undeniably share in common with currencies that they are means of transacting (other) things that are created, that otherwise wouldn't be created, if there was no means to transact. (despite them being insanely deflationary) (and while their psuedonymous nature certainly makes them attractive for illicit transactions, it simply isn't true that they're "only" used for those)

> We have yet to find a single use for it

This just isn't true. It's not difficult to imagine how a distributed tamper proof ledger could be useful, or find actual practical uses of blockchains. I'll be the first to admit blockchains are overhyped and that they don't offer any meaningful advantages over existing tech in many, many of of the proposed use cases, but the legitimate uses cases do exist.

Re: Report on Stablecoins [pdf]

#445

Post by vkou » Tue, Nov 02, 2021, 2:48 AM UTC

hossbeast wrote: post #433

paulgb wrote: post #420

Earlier quoted context omitted.

I’ve been shorting a few bitcoin-related public companies on the theory that in a run on Tether they will have to liquidate large bitcoin holdings and bring down the rest of the market. It’s not as direct, but I’m less worried about counterparty risk. I wrote up my thesis here: https://paulbutler.org/2021/betting-against-bitcoin/

Very interesting read, and it's refreshing to read some contrary opinions on the topic.

The only contrary opinion would be the obvious one - that their correlation to tether's fortunes are not 1:1, and that shorting them gives you a bounded upside, and an unlimited, completely uncorrelated downside.

If the Fed prints another trillion dollars tomorrow, their stock price could double, wiping out your short...

Re: Report on Stablecoins [pdf]

#446

Post by jkhdigital » Tue, Nov 02, 2021, 2:48 AM UTC

jcranmer wrote: post #354

RustyConsul wrote: post #279

Earlier quoted context omitted.

It seems our difference in opinion comes from our definition of value. I know people point to the current system and infrastructure of stock exchanges, SWIFT, the IMF, Central Banks, Retail and Commercial Banks, Internet Banks (Such as Stripe, Paypal, ETC.), Credit Unions, Savings and Loan Associations, Investment Banks and Companies, Brokerage Firms, Insurance Companies as working good enough. But for me... Occams r…

> Doesn't it seem weird that through this complex system of interactions, we can recreate all of that in Code? If there was no value in it, why did we create all those institutions in the first place? One of the primary reasons for the rise of the complex system of interactions, as you put it, is trust . A lot of financial interactions require dealing with people who might not merely not have your best interests at h…

I've been a big fan of Matt Levine's commentary on crypto--he doesn't get all histrionic and judgmental because he knows (and his regular readers know) that whatever craziness is happening in crypto is basically exactly what happens in traditional finance, just dialed up a notch or two.

His column a couple weeks ago about the "main move" in finance (i.e. transmuting an amorphous pile of risk into tranches with radically different riskiness) and how this explains Tether was absolutely brilliant.

Re: Report on Stablecoins [pdf]

#447

Post by tuesdayrain » Tue, Nov 02, 2021, 2:49 AM UTC

arcticbull wrote: post #290

Animats wrote: 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…

> Can Tether survive a net outflow? Probably not. They don't have the collateral. Luckily for Paolo & friends, their terms of service clearly state that they do not ever have to offer redemptions of USDT for dollars. Or even whatever IOUs and bits of string they may or may not have in reserve. Out of all the stable coins its the most likely to withstand a "run" because they do not have to pay you if you ask. In fact…

>The Crypto-USDT pairs will quickly go no-bid

History has shown that this does not happen in crypto. Even for coins like Bitconnect and Confido that plainly turned out to be scams, there were still buyers long after the news was revealed. People like to bet on dead cat bounces, or some kind of news after the fact that redeems the coin.

Re: Report on Stablecoins [pdf]

#448

Post by csstanton » Tue, Nov 02, 2021, 2:51 AM UTC

paulgb wrote: post #420

kirse wrote: post #357

Earlier quoted context omitted.

After that hedge fund issued a $1M reward on Tether backing I did some more investigation and the thing I realized is that 1) Tether is inherently backed by BS and 2) crafting any sort of Tether short is near impossible because everyone in the game - Tether, the exchanges, etc. - will all be against you if you're winning in the short. There's that scene in "The Big Short" where Mark Baum and crew know the subprime bo…

I’ve been shorting a few bitcoin-related public companies on the theory that in a run on Tether they will have to liquidate large bitcoin holdings and bring down the rest of the market. It’s not as direct, but I’m less worried about counterparty risk. I wrote up my thesis here: https://paulbutler.org/2021/betting-against-bitcoin/

Insightful article. Any particular Bitcoin mining companies you’re bearish on?

Re: Report on Stablecoins [pdf]

#449

Post by quickthrower2 » Tue, Nov 02, 2021, 2:52 AM UTC

arcticbull wrote: post #290

Animats wrote: 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…

> Can Tether survive a net outflow? Probably not. They don't have the collateral. Luckily for Paolo & friends, their terms of service clearly state that they do not ever have to offer redemptions of USDT for dollars. Or even whatever IOUs and bits of string they may or may not have in reserve. Out of all the stable coins its the most likely to withstand a "run" because they do not have to pay you if you ask. In fact…

Moot point? If tether tends to $0.01 USD on the exchanges then whether it is officially a "run" or a "crash" doesn't matter to the holders.

Re: Report on Stablecoins [pdf]

#450

Post by krick » Tue, Nov 02, 2021, 2:55 AM UTC

roywiggins wrote: post #398

arcticbull wrote: post #392

Earlier quoted context omitted.

The reason it hasn't collapsed already is that all the exchanges are in on it. It's crypto's equivalent of "too big to fail." 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 distract…

Oh, I understand why it hasn't collapsed already. 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 phys…

> Oh, I understand why it hasn't collapsed already.

I feel stupid, but I still actually don't. If considerably more people will want to sell it than there is a demand for it, the price will have to go down, no matter what, as long as "price" is anything more than a decorative label on the exchange's website and you actually can swap it for any currency at all. So, either the exchange should cover all that demand, which doesn't sound reasonable (I'm not sure it's realistic, and even if it was — why would they do that? if this happens, Tether is dead, they can either abandon it or go down with it), or there actually must be some demand. So, I assume it's the latter.

But why would there be any demand for it, if everybody (basically) knows that USDT is a scam? It isn't the same thing as "SHIBA is a scam" or whatever, because even if everyone agrees SHIBA is essentially worthless, people are buying it to speculate, so it can hold onto a belief that others believe it will grow. You cannot speculate on USDT, since USDT cannot grow by definition, it's a stablecoin (and not the only one — there are others with better reputation). It can only crash.

So why doesn't it?