Regulators should treat stablecoins like banks • Hacker News Board

Re: Regulators should treat stablecoins like banks

#121

Post by LatteLazy » Wed, Aug 11, 2021, 4:52 PM UTC

cwkoss wrote: post #109

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.

Was 2008 an issue of lack of regulation or lack of enforcement? I thought it was more about "too big to fail" attitudes preventing enforcement from being fairly applied to the largest participants.

Too big to fair came after 2008. Before then it was assumed that if a large institution did fail it would be orderly and the system could take the shock. That turned out to be wrong when it did happen...

Re: Regulators should treat stablecoins like banks

#122

Post by dalbasal » Wed, Aug 11, 2021, 4:54 PM UTC

Turning the proposition around, why not have regular banks, even the Bank of England. Issue an official GBPCoin, or a banking framework that does the same thing. Have whoever needs stablecoin use that.

That is, stablecoins are basically USD accounts, just with the actual bank receipts (the coins) circulating. Make that a form of deposit account, and regulate and insure it like any other deposit account.

It presents some questions that aren't answered in advance, but I don't think it's impossible to do this right. In some sense, a stablecoin system is easier to understand.

Re: Regulators should treat stablecoins like banks

#123

Post by mbesto » Wed, Aug 11, 2021, 4:55 PM UTC

mdorazio wrote: post #104

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…

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.

Re: Regulators should treat stablecoins like banks

#124

Post by jcranmer » Wed, Aug 11, 2021, 4:56 PM UTC

cwkoss wrote: post #109

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.

Was 2008 an issue of lack of regulation or lack of enforcement? I thought it was more about "too big to fail" attitudes preventing enforcement from being fairly applied to the largest participants.

It's a little unclear, because (like many things in public policy) there's several putative explanations for what caused the crises, peoples' preconceived notions color which ones they favor, and it's manifestly unclear who is right. And it should be remembered that "everyone" is a perfectly plausible answer.

At a broader level, there is most consensus on the idea that the key failure in 2008 was that no one--neither investors nor creditors nor credit-rating agencies nor regulators--correctly understood the risk profiles of the new financial products, and things that were thought to be very safe or at least combined uncorrelated risk profiles suddenly started all taking in unison at the same time.

Re: Regulators should treat stablecoins like banks

#125

Post by jpmattia » Wed, Aug 11, 2021, 4:58 PM UTC

FabHK wrote: post #43

simmerup wrote: post #4

Earlier quoted context omitted.

So if 0.26% of tether is withdrawn into currency the coin would collapse? Am I reading that right?

I don't think that's the right way to read it. Currently, all the holders of tether could ask for dollars, and they'd all get them, and there'd even be 0.26% of the original balance left. (Under quite some assumptions, namely that they could sell the commercial paper at the value at which they hold it in their accounts.) However, if the value of their assets would shrink, say, by 1%, their equity would be wiped out,…

> Currently, all the holders of tether could ask for dollars, and they'd all get them, and there'd even be 0.26% of the original balance left.

This is the correct reading: 0.26% is the excess in total capital compared to liabilities.

Earlier in the article, they state that Tether has 5% cash+equivs, so you know that 5% of Tether could be redeemed without trouble. If there were redemptions in excess of that, they would need to sell securities.

Re: Regulators should treat stablecoins like banks

#126

Post by beiller » Wed, Aug 11, 2021, 5:03 PM UTC

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?

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?

Re: Regulators should treat stablecoins like banks

#127

Post by mullingitover » Wed, Aug 11, 2021, 5:05 PM UTC

jcranmer wrote: post #124

cwkoss wrote: post #109

Earlier quoted context omitted.

Was 2008 an issue of lack of regulation or lack of enforcement? I thought it was more about "too big to fail" attitudes preventing enforcement from being fairly applied to the largest participants.

It's a little unclear, because (like many things in public policy) there's several putative explanations for what caused the crises, peoples' preconceived notions color which ones they favor, and it's manifestly unclear who is right. And it should be remembered that "everyone" is a perfectly plausible answer. At a broader level, there is most consensus on the idea that the key failure in 2008 was that no one--neither…

> It's a little unclear, because (like many things in public policy) there's several putative explanations for what caused the crises, peoples' preconceived notions color which ones they favor, and it's manifestly unclear who is right.

I thought 2008's cause was perfectly clear: the banks all sold insurance policies on each other (in the form of credit default swaps) that they couldn't fulfill. When one bank went under due to bad bets in the market, this triggered policies that, if fulfilled, would bankrupt the next bank. That in turn bankrupted the next, and so on.

People focus on the conditions that bankrupted the first bank, but that was just the final snowflake that happened to trigger the avalanche.

Re: Regulators should treat stablecoins like banks

#128

Post by tw04 » Wed, Aug 11, 2021, 5:05 PM UTC

cwkoss wrote: post #109

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.

Was 2008 an issue of lack of regulation or lack of enforcement? I thought it was more about "too big to fail" attitudes preventing enforcement from being fairly applied to the largest participants.

It was entirely a result of deregulation.

https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legis...

Re: Regulators should treat stablecoins like banks

#129

Post by jpmattia » Wed, Aug 11, 2021, 5:12 PM UTC

namdnay wrote: post #81

gunshai wrote: post #71

>Tether, has issued $62bn-worth of tokens which it says are redeemable for a dollar apiece. But of the assets backing the tokens in March only about 5% were cash or Treasury bills Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper: Commercial Paper and Certificates of Deposit2 $30,807,654,349 Cash & Bank Deposits3 $6,282,756,692 Reverse Repo Notes4 $1,000,662,458 Treasury Bills5 $15,279,528,705 Su…

Careful, commercial paper is most definitely not the same as cash or treasury bills. It could be AAA, it could be BBB- Wasn't there a story about an independent audit that was cancelled or something? I remember the weird assertion that they couldn't disclose whose commercial paper they were holding, which I've never heard before

> It could be AAA, it could be BBB-

The ratings were in their August report.

Re: Regulators should treat stablecoins like banks

#130

Post by hiddencache » Wed, Aug 11, 2021, 5:13 PM UTC

SparkyMcUnicorn wrote: post #40

hiddencache wrote: post #26

No cryptocurrency currently passes the test as a currency in terms of acceptance, transaction speed and stability. So if it's classed rather as a store of value (read investment) then I don't see the difference between it and other investment classes which you need to be a sophisticated investor to access. Noobs typically need protecting from themselves.

Other than acceptance, that's a rather bold blanket statement. Visa and Mastercard handle roughly 7000 transactions per second. Solana's chain (as an example) is among the highest performing and can handle north of 50k TPS. Edit: Please challenge my position and make me think. Votes are pointless, but being proven wrong is a learning experience.

I see I'm also getting some downvotes, but I'll try to clarify just from my perspective.

We looked into the option of accepting cryptocurrency as a payment method but came up against too many obstacles. Without being able to prove the provenance of client funds we would be at risk of breaching "proceeds of crime" / anti-money laundering regulations.

And while the value of cryptocurrencies bounces all over the place and makes it impossible to budget, even stablecoins present problems. While they are pegged to something, the question is to what. Those pegged to precious metals such as gold or silver were a no-no, and even those pegged to the dollar present a problem. (As an aside it obviates one of the cited advantages of bitcoin - as a hedge against monetary policy-driven inflation). The question our board came up with was, if the currency is pegged to the dollar, why not just accept dollars? At least with established currencies we can buy currency hedging. With stablecoins, we'd be looking at specialist forex hedging, or messing about with futures. The board looked at the cost-benefit for about five minutes before they threw it out.