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Report on Stablecoins [pdf]

home.treasury.gov

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Re: Report on Stablecoins [pdf]

#491

Post by paulgb »

csstanton wrote: post #448
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/

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

Thanks. I mostly bet against the two largest, RIOT and MARA. The smaller ones can be very volatile and thinly traded.

Re: Report on Stablecoins [pdf]

#492

Post by orasis »

nostrademons wrote: post #14

Interesting to read this with an eye on the authors' mindset. Their understanding of stablecoins seems largely centered on Tether (and to a lesser extent, BUSD/USDC). A lot of their understanding is incorrect when applied to algorithmic stablecoins like Dai, eg. there is no central issuing authority; Dai is minted in exchange for Ethereum (and other cryptocurrencies), not fiat currencies; the effect of a run on Dai i…

Legislation will ensure that reality continues to be determined by legislation, not computer code.

Re: Report on Stablecoins [pdf]

#493

Post by sanderjd »

Igelau wrote: post #349
sanderjd wrote: post #299

Earlier quoted context omitted.

You are not showing yourself to be a person that it is worthwhile for this person to waste time on. There are other people in this thread with your point of view but who are commenting in good faith, rather than in bad faith like you are.

Bad faith involves deliberately hiding some truth. It doesn't mean "thing you call someone when you can't win the argument". And I suspect you know that, which means... ;)

That is one kind of bad faith argument but there are others. In this case it is asserting that something is some adjective ("pathetic"), getting a response, and then just reasserting the same thing without responding to the response.

Re: Report on Stablecoins [pdf]

#494

Post by FatalLogic »

nanexcool wrote: post #441
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

And as well as those errors:

OP doesn't realize that DAI has sailed through falls in ETH value of far more than 50% (I think the worst was over 90% in 2018)

OP, despite his obvious great intelligence, doesn't realize that another, stronger question about DAI would be the potentially-worrying linkage to USDC etc to provide stability (though critics should note that even before that stability module, PSM, was introduced it had never deviated by more than 1%, AFAIK)

Seeing that this is, despite all those errors and omissions, the top comment here, is extremely dispiriting

Re: Report on Stablecoins [pdf]

#495

Post by oarabbus_ »

kirse wrote: post #357
arcticbull wrote: post #290

Earlier quoted context omitted.

> 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…

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…

>That same thing will happen if crypto has a major run. The exchanges already conveniently "go down" when Bitcoin dumps even now

To this point specifically: is there any proof this is malicious? Amazon, Facebook, Google have all had outages before; shouldn't we apply Hanlon's Razor when a cryptocurrency exchange fails to serve requests during a massive traffic spike?

Re: Report on Stablecoins [pdf]

#496

Post by panarky »

paulgb wrote: post #488
panarky wrote: post #479

Earlier quoted context omitted.

Either markets work or they don't. Sure, in the short term, unregulated markets can be manipulated. But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them. You can sell Tether on Coinbase for U.S. Dollar deposits to your bank account. The fact that Tether maintains its 1:1 peg to the dollar is a signal that maybe all the smart guys who have been conf…

> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them. How would the smart money profit from obliterating them? If you’re referring to a Soros/GBP style trade, how would one borrow enough USDT to pull it off?

Somebody holds large chunks of the $70.5 billion in USDT.

Presumably, people who hold hundreds of millions of the stuff are well aware of every accusation made against Tether.

If they wanted to, they could trade their USDT for actual US fiat on a 1:1 basis if they thought USD was worth more than USDT.

The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for greenbacks.

Re: Report on Stablecoins [pdf]

#497

Post by arcticbull »

wyager wrote: post #483
arcticbull wrote: post #218

Earlier quoted context omitted.

That's not quite correct, although I understand your sentiment. When you own a share of Square (or Visa, or PayPal) each time a transaction takes place on their network, a portion of that transaction (revenue minus costs) accrues to the company - and by extension increases the intrinsic value of your share. The transaction revenue is spent on furniture, on R&D, on employees and on buffing up their cash position. As a…

> Bitcoin ~= a Starbucks gift card you hope appreciates in value when Starbucks sells more coffee Are you under the impression that Bitcoin is a company? This analogy really doesn't make sense from any angle, even being extremely charitable, so it's hard to address.

Bitcoin is a combination of a set of tokens, BTC, and a set of miners. Miners are either sole proprietors or, increasingly, publicly traded companies which operate the network collectively. When a transaction takes place, value is extracted from the BTC everyone holds and is transferred to these entities. The more transactions take place, the more value accrues to miners, not to holders. It's in fact taken from holders. Miners become more valuable, and the value accrues to these mining entities, which frequently means to shareholders in the public markets.

Starbucks cards are akin to pre-selling coffee tokens. Each time Starbucks redeems these coffee tokens for coffee, they collect a portion of the transaction just as miners do. And just as miners do, they pass on the majority to their suppliers and employees. Just as in the Bitcoin example, the fact Starbucks is selling tons of coffee, collecting a lot of transaction fees, doesn't mean that the Starbucks cards themselves become more valuable. Starbucks Inc, and Starbucks shares do, and that value accrues to their shareholders.

I hope that clarifies my thoughts. Open to being wrong about this framing.

Re: Report on Stablecoins [pdf]

#498

Post by benjy81 »

sub7 wrote: post #143

From a Coinbase exec: "Tether is a ticking time bomb. Whenever it goes off, it'll be a 70-80% market correction for 2-3 years" Crypto continues to help nobody and achieve nothing in the real world. This administration has been criminally slow in shutting it down, lobby is strong.

I run a globally, distributed company funded solely operated based on smart contracts and cryptocurrency/equity. We got 50 investors from around the world. Most of hackernews is exclusively focused on the United States, which is a very limited point of view. Try travel and see other parts of the world and you might understand it better.

Re: Report on Stablecoins [pdf]

#499

Post by tylerrobinson »

michaelmrose wrote: post #490
krick wrote: post #450

Earlier quoted context omitted.

> 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, whi…

If I understand correctly nobody has a useful handle to profit from killing it and all the players have an incentive in it's continued existence. Killing it would require large scale collaboration among individuals who collectively would all be hurt.

> all the players have an incentive in it's continued existence

Even retail investors? Why do they hold a stablecoin that has any risk at all, with no upside? What is the retail investor’s end game here?

Re: Report on Stablecoins [pdf]

#500

Post by paulgb »

panarky wrote: post #496
paulgb wrote: post #488

Earlier quoted context omitted.

> But Tether's been around more than seven years, more than enough time for the "smart money" to profit by obliterating them. How would the smart money profit from obliterating them? If you’re referring to a Soros/GBP style trade, how would one borrow enough USDT to pull it off?

Somebody holds large chunks of the $70.5 billion in USDT. Presumably, people who hold hundreds of millions of the stuff are well aware of every accusation made against Tether. If they wanted to, they could trade their USDT for actual US fiat on a 1:1 basis if they thought USD was worth more than USDT. The really smart money with large crypto stashes could borrow USDT with crypto as collateral, and trade the USDT for…

A lot of folks in the “tether will fail spectacularly” camp also believe that its failure poses a systemic risk to other crypto, both because tether holds positions that they would have to quickly liquidate in a run, and because USDT makes up a large component of the daily trading volume for many coins.

So I suspect there’s not much overlap between people who believe they could break tether and people sitting on a large crypto stash to use as collateral.

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