Bitcoin’s reliance on stablecoins harks back to the Wild West of finance • Hacker News Board

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#131

Post by lottin » Sat, Jun 05, 2021, 7:42 AM UTC

SailingSperm wrote: post #74

droffel wrote: post #65

Earlier quoted context omitted.

Given that the 8.6% return is contingent on those funds being loaned out to third parties in a manner that involves risk (like margin trading), I am highly skeptical of their ability to not lose your money on the timeline of a decade. The trustworthiness of Blockfi doesn't matter if they mess up and end up loaning money to someone who ends up unable to pay the bill - and the person on the hook if the borrower does no…

The thing is though that most all of these crypto lending platforms only offer over collateralized loans, so the risk of them being screwed over by lack of payment from the person taking the loan is negligible. Meaning If I want to lend $100 worth of USDC I must give $200 as collateral worth of BTC to get the loan. Where if that $200 worth of BTC drops to a worth of $100, it's liquidated, paying off your loan, leavin…

The reason they require so much collateral is because the value of the collateral is highly correlated with the value of the investment, since both the investment and the collateral are in the form of crypto-assets, and crypto-asset prices tend to move together. This means, in the event of a crash in the crypto market, the probability of incurring losses from such a loan would not be negligible.

Then there's also foreign exchange risk. The return on these loans is quoted in terms of the currency the debt is denominated in, whereas what the investor cares about is the return of the investment in terms of their local currency. This is the same situation that an investor would face if they decided to buy Argentine bonds, which pay over 20% annually in pesos. The return that they would get in their local currency would likely be much smaller. It could even be negative.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#132

Post by runeks » Sat, Jun 05, 2021, 7:45 AM UTC

lxgr wrote: post #128

gruez wrote: post #30

Earlier quoted context omitted.

>Is this documented anywhere? What's the procedure within USDC to perform this block? https://etherscan.io/address/0xa0b86991c6218b36c1d19d4a2e9eb... The smart contract has a "blacklist" function.

Does the proxy implementation pattern used in this contract actually mean that the owner of the corresponding keys can not only block addresses from holding USDC, but actually swap out the entire implementation, e.g. for one implementing transaction or inactivity fees?

Why does it matter? They owe you the money in the first place. If they’re ill-intentioned they can just refuse to redeem your coins, or require that you send them to a new contract with different rules.

There’s no reason credit instruments should be on a blockchain in the first place, given you’re depending on a central party for redemption.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#133

Post by lottin » Sat, Jun 05, 2021, 7:49 AM UTC

G3rn0ti wrote: post #121

dannyw wrote: post #73

Earlier quoted context omitted.

Dollar yields in the crypto universe have forever been higher. I've consistently got 12-25% per year from 2015 using exchanges like Bitfinex and haven't lost a single dollar. Why isn't it arbitrated away? Because institutions and market makers don't trust crypto. When they do, I'm sure it'll go as low as rest of market rates.

One of the reasons why the yields are higher for stable coins is they are not bound by central banks‘ interest rates. This is especially true for purely synthetic stable coins (DAI, sUSD, sEUR) because they don’t even need to be backed by the underlying asset. The other reason is they cut the middle man between a creditor and debtor i.e. banks. If banks started to sell financial products based on liquidity pools, the…

The fact that the yields are higher for stablecoins simply means borrowers of stable coins are paying more to borrow stablecoins than they would if the borrowed the underlying currency instead. It has nothing to do with middlemens or central banks's interest rates.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#134

Post by grey-area » Sat, Jun 05, 2021, 7:50 AM UTC

meowkit wrote: post #107

grey-area wrote: post #105

Earlier quoted context omitted.

Bitcoin is a terrible replacement for our current payment systems and credit cards on every metric.

Sure, but the guy you responded to said crypto not Bitcoin.

The same criticism applies, a global distributed consensus is fundamentally flawed as a payment system, and the current ad-hoc organically grown mess of different centralised payment systems interoperating is somehow still more suited to processing payments quickly and reliably than ‘crypto’.

Fast transfers, trusted partners, regulation, audits, identity verification, fraud prevention, backing, sound money. All these things are important and valuable, and while our current system is really flawed in some ways (in particular the control of politicians over money supply and the monetisation of debt), cryptocurrencies do not offer a solution to the most pressing problems and introduce too many of their own.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#135

Post by alpenbazi » Sat, Jun 05, 2021, 7:51 AM UTC

Clewza313 wrote: post #85

Animats wrote: post #83

Earlier quoted context omitted.

BlockFi says they are lending at 4.5% and accepting deposits at 8.5%. What's wrong with this picture?

Let me get this straight: you can lend from BlockFi, deposit it straight back, and make a 4% profit?

Ever heard of Flash Loan Attacks? https://coinmarketcap.com/alexandria/article/what-are-flash-...

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#136

Post by bouncycastle » Sat, Jun 05, 2021, 7:56 AM UTC

fastball wrote: post #96

bouncycastle wrote: post #63

Tether is very good for borrowing, if you think it might collapse. You can borrow a large amount, buy a hard asset with the borrowings, and if it collapses you'll only need to pay back at a discount. (Not advice) I am beginning to think that it would be worse if USDT went over the peg rather than under! Therefore, it would not surprise me if the Tether FUD might be intentional - otherwise Tether might start "collapsi…

The problem with that plan is that Tether loaning (outside the interesting relationship exchanges have with Tether) is generally gonna be DeFi loans, which are massively over-collateralized (something like 2:1 collateral to debt). If Tether crashed, it is not clear that your collateral would not be liquidated to cover the nominal value of the original loan, rather than the new (near zero) value of Tether.

Actually, what I've described is called "shorting".

In defi it's never the nominal value, but the current value, so it would be very clear that your collateral would unlikely be liquidated. You can also use something like USDC for the collateral for even more safety. (I think you can already see some evidence of this strategy since the interest rates for USDT are always higher)

The scenario where all the collateral would be liquidated would be if Tether broke its peg and went up. That would be a disaster. (Also called a "short squeeze")

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#137

Post by tluyben2 » Sat, Jun 05, 2021, 8:07 AM UTC

Havoc wrote: post #3

Honestly stablecoins - specifically tether - is about the only thing about crypto that genuinely frightens me. Crypto rollercoaster - up down sideways and in circles - sure I'm game. Tether that is stable until it implodes...hell no. Even without direct exposure the blast radius worries me.

I find it weird that any person 'hodls' any crypto. I pick the rallies (like the one last night) and ride them, then sell. I cannot, besides stress, understand why anyone would hold crypto currencies at this point. It is too young and Wild West. That's why riding waves is easy and if you trade half decent you can make fortunes. But it can be gone tomorrow; for instance if Tether gets called on it's bluff.

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#138

Post by notahacker » Sat, Jun 05, 2021, 8:10 AM UTC

fastball wrote: post #100

cortesoft wrote: post #95

Earlier quoted context omitted.

Isn’t this like saying a run on the banks won’t damage you if you keep your money in a mattress? Even if you don’t keep any money in a bank, banks collapsing would still hurt you. The stock market crashing hurts more than just people who own stock.

Right, but a run on a bank does not necessitate collateral damage. As an example, let's say Capital One has been fractional banking (as they all do) but for some reason people get paranoid about it and there is a run on the bank. Everyone tries to withdraw money Capital One doesn't have. As long as the govt doesn't step in and socialize losses on the back of the taxpayer, you're left with a bunch of people who had "d…

People who only bank with Chase are likely owed money or expecting income from Capital One customers who now unexpectedly do not have any money.

Also, Chase customers start worrying about the security of their money, and they start to withdraw from Chase faster than Chase debtors pay off their loans

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#139

Post by jamesrom » Sat, Jun 05, 2021, 8:13 AM UTC

tluyben2 wrote: post #137

Havoc wrote: post #3

Honestly stablecoins - specifically tether - is about the only thing about crypto that genuinely frightens me. Crypto rollercoaster - up down sideways and in circles - sure I'm game. Tether that is stable until it implodes...hell no. Even without direct exposure the blast radius worries me.

I find it weird that any person 'hodls' any crypto. I pick the rallies (like the one last night) and ride them, then sell. I cannot, besides stress, understand why anyone would hold crypto currencies at this point. It is too young and Wild West. That's why riding waves is easy and if you trade half decent you can make fortunes. But it can be gone tomorrow; for instance if Tether gets called on it's bluff.

I find it weird that people can't see how that attitude is exactly why it's a rollercoaster...

Re: Bitcoin’s reliance on stablecoins harks back to the Wild West of finance

#140

Post by dan-robertson » Sat, Jun 05, 2021, 8:15 AM UTC

mrlaserOO wrote: post #129

lubujackson wrote: post #51

Earlier quoted context omitted.

Tether imploding isn't at all like a public company closing shop, because public companies are Real Things and have public data about sales, revenue, employees, business relationships, etc. And even the ones that implode go through bankruptcy court where their assets are doled out to debtors and shareholders. Tether imploding would be more like a bank run, where you can see YOUR MONEY as a number on the screen then w…

Ummm how exactly would banks give you 900m for 100m in collateral?! Can you make an example?

It’s not banks but I think the GP is trying to describe a margin loan. Basically you give (say) an exchange $100, ask them to buy $1000 worth of stuff using your $100 as margin, and if the stuff you bought looks like it is going to be worth less than $900 (ie if they would make a loss by selling all your stuff) they will call you and ask for more collateral or, if you are too slow, sell all your stuff for eg $925, leaving you with a less of $75.