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Regulators should treat stablecoins like banks

economist.com

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Re: Regulators should treat stablecoins like banks

#31

Post by chroem- »

toomuchtodo wrote: post #17
kn0where wrote: post #16

Earlier quoted context omitted.

The big difference is the FDIC.

Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

> Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

The practical implication of solving large scale bank failures with mass currency printing is hyperinflation. You would only get your money back in nominal terms, but its purchasing power would be greatly reduced. See also: Weimar Germany and Zimbabwe.

Re: Regulators should treat stablecoins like banks

#33

Post by pacifist »

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.

> Noobs typically need protecting from themselves.

Whenever I hear this I start looking for my wallet.

Re: Regulators should treat stablecoins like banks

#34

Post by dcminter »

jyu wrote: post #29

Paypal is not a licensed bank. Square, whose IPO was 11/19/2015, only got their bank license in 2020. Why should cryptocurrency be under the purveyance of banking regulations? Cryptocurrency is pulling back the iron curtain and revealing the real Wizard of Oz when you consider unequal regulatory treatment and unequal enforcement efforts. Remember BOA robosigning fake mortgages and commiting widespread fraud? Remember…

Paypal within the EU is indeed a bank.

Re: Regulators should treat stablecoins like banks

#35

Post by xur17 »

gruez wrote: post #22
toomuchtodo wrote: post #17

Earlier quoted context omitted.

Which, if it were to fail (which is exceptionally unlikely), is backed by the US Treasury and the Federal Reserve. EDIT: Walking back to first principals, why can't the USD fail? Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts.

>Because you can print whatever adults in the room decide need to be printed to hold the economy up. You cannot do this with a deflationary digital asset, nor one tied to smart contracts. Sounds like a feature to me. Printing money is effectively a socialized loss for everyone who's holding the currency.

But this means that all users of USD are providing an insurance pool for the banks for free. Doesn't quite seem fair.

There are some decentralized stablecoins (stablecoins backed by crypto assets + market rules that ensure they keep the peg) that have explicit insurance pools + rewards for being part of that insurance pool. For example, Liquity [0] allows users to deposit the stablecoin and earn rewards + favorable liquidation positions (a 10% discount) in return for being the first layer that purchases liquidations.

Not exactly sure what the equivalent would be in the traditional finance world, but I could imagine some sort of higher interest savings account that isn't FDIC insured, and takes losses first.

[0] https://www.liquity.org/

Re: Regulators should treat stablecoins like banks

#36

Post by CryptoPunk »

nonameiguess wrote: post #30
CryptoPunk wrote: post #13

Earlier quoted context omitted.

>>They nearly took out the real economy in 2008. No they didn't. The government nearly took out the real economy. In the decade before the financial crisis, regulatory pressure was used to force banks to issue more subprime mortgages. This article from 2000 warns of the consequences: https://www.city-journal.org/html/trillion-dollar-bank-shake... Government sponsored enteprises, which underwrite 50% of the entire US…

The person you're replying to isn't talking about the housing market collapse. The credit crunch that happened after was the much bigger threat to the global economy, and that was entirely caused by businesses operating with zero cash due to the assumption that commercial paper and other types of short-turnaround overnight loans were close to risk free even though they were not.

The housing market collapse is the reason for the misassessment of risk, and the over-extension of credit. Mortgage-backed securities were considered AAA assets, which is why so little in cash reserves were maintained.

>>Had Tether been around in '08, it would have been accumulating hordes of that stuff to back itself up.

That's irrelevant, because every one, including regulators, would have considered that adequate collateral. There was a systemic misassessment, due to the systemic impact that government intervention had on the housing and sub-prime mortgage market.

Re: Regulators should treat stablecoins like banks

#37

Post by dangerlibrary »

jyu wrote: post #29

Paypal is not a licensed bank. Square, whose IPO was 11/19/2015, only got their bank license in 2020. Why should cryptocurrency be under the purveyance of banking regulations? Cryptocurrency is pulling back the iron curtain and revealing the real Wizard of Oz when you consider unequal regulatory treatment and unequal enforcement efforts. Remember BOA robosigning fake mortgages and commiting widespread fraud? Remember…

It is extremely unclear what, if anything, you are arguing for or against, other than that banks have recently done some bad things.

It seems like you might be against regulating stablecoins as banks, but you also appear to be arguing for harsher punishments for banks that misbehave? Or something?

Re: Regulators should treat stablecoins like banks

#38

Post by wins32767 »

AcerbicZero wrote: post #32

Why should we let obviously captured regulators attempt to wrangle the only thing that even remotely looks like competition to their captors’ core business models?

Because despite being captured, those regulators make sure the system works much better than it did 100 years ago when there were regular, crippling depressions and people lost their life savings when banks failed. The financial system undergirds the rest of the economy and some stability and caution is warranted when messing with a core part of the architecture of modern society.

Re: Regulators should treat stablecoins like banks

#39

Post by jcranmer »

SilasX wrote: post #25
formercoder wrote: post #21

Earlier quoted context omitted.

They still have tier 1 and tier 2 equity requirements. This isn’t really analogous.

Oh, and Tether is holding assets that wouldn’t meet those requirements? Sorry, wasn’t sure if you meant that as a difference.

No, Tether is not. The equity and capital buffer requirements are somewhat more complicated to explain simply, but the end result is that a bank needs at least ~8% of cash outright to meet those requirements.

Tether has less than 1/10th the amount of cash it would be required to have were it a bank.

Re: Regulators should treat stablecoins like banks

#40

Post by SparkyMcUnicorn »

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.

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