It's amusing (to me) how the cryptocurrency community has managed to convince its members to accept ridiculous amounts of commoditization and middlemen in exchange for anonymity properties that are strictly worse than cash, and arguably worse than payment cards.
Once we have layer 2 payments using zk-rollups, transaction costs will fall to a few cents and many apps could easily integrate these technologies to tumble your wallet (taking all funds and send them through this tech into a new wallet) any time you want for a dollar or two. Or they could automatically do this after every transaction.
Then everyone will have access to easy completely anonymous payments in any currency they like.
We're just in the early days of this tech, like the internet when we used http everywhere and no one knew what a VPN was.
Not with the same volume as on mainnet, but still gradually increasing.
If the current trajectory is any indication, it's more likely that everyday users would mostly hold custodial accounts at organizations (e.g. Coinbase, like banks) and use stablecoins that way, which control aggregate wallets, and trackability stays within the org level (also like banks). Probably not as easy for the public to access (possible in data hacks) but just as easy for government access.
The question must become "what is the other mechanism?". In the case of Tether, which has the largest market cap of any stablecoin, as far as I know, the scam is this. If I want to have liquidity on Bitfinex, I need to go buy tethers. If I try to make a transaction for bitcoins with dollars on the exchange, it could take days to process. There's no particular reason for this, You're just trading shares of a large wallet. So I must first go buy some tether from bitfinex, but wait, USD to Tether liquidity is also artifically capped. If I try to buy tether for dollars, it can also take days.
It follows that the only way to obtain liquidity on one of these exchanges is to buy and hold stablecoins. This is the premise upon which the exchanges that print these currencies can then turn around and lend the dollars used to buy them.
If you discovered, suddenly, that a casino had 78 billion dollars in chips just floating around, you would rightly wonder what the hell was going on, although the explanation would likely be different.
Tether is not a cryptocurrency, it's a casino chip. An escrow account that the bank is illegally investing in risky securities, entirely for the profit of its executives, investment in which is entirely funded by manipulating access to the wider crypto market.
The primary reason for delays between buying crypto and actually receiving it is your bank. Not the exchange. Your bank is fucking around with your money and not sending it to the exchange immediately and even after they send it they have the ability to reverse the transaction, so the exchange needs the guarantee the money will not be taken from them.
The rest of your comment is just nonsense. Tether is a cryptocurrency I don't even understand how you could argue its not. You should look into all the laws traditional banks break using your money too.
The fact that the market isn't totally efficient doing USD/BTC transactions directly and the fact that Tether is clearly far more risky than USD kinda indicates something is up. Who knows, they could be playing it safe and be well capitalized, but if they're not, it becomes a very similar situation to when Soros made a mint "breaking" the Pound.
For one, in theory, one useful aspect of a stable coin is to allow a user to get in and out of numerous crypto currencies while minimizing fees and delays.
Any engagement with the fiat banking system will typically cost time and/or money basically due to the potential for fraud and existing anti-fraud measures both for the banks as well as the exchanges.
As such, stable coins in theory should be a reasonable proxy for fiat for folks who trade crypto aggressively (e.g., day trading).
In practice, you get the train wreck that is Tether and Bitfinex. I realize that Tether is huge, but it’s not the best poster child for what a stable coin should be or can be.
I think some smart folks have realized that running solidly backed stable coin — that is, with actual currency rather than proxies like more crypto, bonds/loans, etc. — is a something worth pursuing. Perhaps for reasonable profit, perhaps for power… who knows? I think proper stable coins will become more prominent moving forward.
A second mechanism, and I think this is a big one, is that stable coins managed directly or indirectly by nation states (specifically US and China and maybe EU) will be a big deal in developing countries for both savings as well as transactions. China is already doing this on a small scale. Without getting into the nitty gritty, being a winner in this area will provide the issuer of the stable coin a tremendous amount of influence on the world economy.
I know little about finance but I don't understand why it is smarter to back a stable with cash rather than with bonds and loans for instance.
That's the Federal Reserve being themselves. Buy US dollars, use US dollars as the global currency. It makes a lot of sense for the USA, not necessarily for the rest of the world. But the Federal Reserve represents it's country interest, so it makes sense.
This is the FederalReserve taking a measured analysis, saying "wow all those luddites were hilariously wrong and have no idea what they're talking about, but we're going to stop just short of saying this is already pretty amazing".
I do know some parts of the US govt has complained about the pegging because it made US workers more expensive than Chinese workers.
And the I remember the £ in the 90's crashing out of the Exchange Rate Mechanism when it was pegged to the German DM as Germany had(still has) a strong economy which sent interest rates soaring to something like 12 or 15%!!!
So pegging currency to others must be more nuanced than that it seems.
Because the US makes it easy for you to trade dollars around. The dollar's dominance will collapse the moment that significant restrictions are introduced around who can hold it, how they can hold it, and what they can trade it for.
China doesn't care one whit about making it easy for a foreigner (or a local) to trade its money (or derivatives) around. China cares about stabilizing its economy. If the CPC decides tomorrow that currency controls are necessary to stabilize their economy, you're going to be SOL. If the CPC decides tomorrow that USD, or BTC, or RMB can't flow out of China, you're SOL. And so on, and so on.
I wouldn't recommend making investments when you don't understand the risks.
There's just no way traditional FX can compete when you can instantly swap a USD token for a token of any other currency at tiny cost everywhere in the world. Crypto exchange already does this, and sometimes better, it's just harder for people to figure out.
Even the half-way situation we have today of USD stablecoins trading for local currency in other countries is likely going to obliterate traditional FX in a few years. It's already happening, and really fast.
Attestations vs. audits, what purpose each one serves in an accounting sense, and why an organization would opt for one over another; these are conversations I don't see being had, but conversations that, I think, would clear a lot of the frustration and confusion up, on the part of the skeptics.
Zero reserves means print as much as you want, subject only to the bank's own underwriters. The banks went and minted trillions of dollars in unbacked currency. Most of our fiat money supply comes from M2 and M3 money issued by banks.
Meanwhile, algorithmic stablecoins like DAI have 150% reserves, yet the government doesn't trust them as much as the banking system?
Why do so many crypto critics pretend DAI doesn’t exist?
Matt Levine wrote a great article explaining how stablecoins could actually be too safe, and that concerns the Fed, possibly to the point of action [0]:
> A less obvious risk of stablecoins is that they might be too stable. A stablecoin is, among other things, a substitute for putting money in a bank. Banks are generally very safe places to put money, but they are not perfectly safe. There can be runs on banks; banks can fail. For most U.S. retail bank accounts this is not a very salient problem, since they are backed by government deposit insurance, but many large institutional pools of money (corporate cash accounts, money-market funds, etc.) park their money in short-term bank instruments and are sensitive to risk. If a bank gets riskier, it will lose deposits. And if a stablecoin is so stable that it is safer than a bank, then banks generally will lose deposits.
> Why is this a risk? Well, banks do useful stuff. Classically, they take people’s deposits and lend them out to other people to start businesses and buy homes. The provision of credit by banks helps the economy grow. More to the point, the withdrawal of credit by banks hurts the economy, and the risk here is wrong-way. If people get nervous about banks and pull out all their money to put it in safer stablecoins, then (1) that will probably happen at a time when the economy is shaky and (2) that will definitely make the economy shakier. The bulk of the response to the 2008 financial crisis involved preventing runs on banks, because those would have made all of the problems of the crisis much worse.
The critics are asking for something that's a little ridiculous and not in line with a) how banking works or b) accurate according to what the definitions of "attestation" and "audit" means in accounting.
[0] https://www.bloomberg.com/opinion/articles/2022-02-01/hedge-...
Democratic government is the people; it is the people having power over things. Other sources of power, like big business and wealthy people, like to spread ideas deriding government (e.g., the Koch Brothers), so that the power shifts to them.
Who has power over your favorite cryptocurrency? If government gives up regulatory power, who gets that power?
Reasonably, the American people want control over the currency and money supply in their own country.
> Reasonably, the American people want control over the currency and money supply in their own country.
Sure and they can keep it, I just don't know why they need to control everyone else too. I'm on the other side of the planet and the only relevant politics is the US, whether or not I get to own a home in my lifetime depends on one guy deciding how strong he wants the dollar to be ... I don't find this system particullary reasonable.
They even know the word "composability" and have lended credibility to the term and context as morphed by the smart contract space.
> . On public blockchains, this also allows for 24-hours-a-day/7- days-a-week/365-days-a-year transactions.5 Second, stablecoins are typically built on DLT standards that are programmable and allow for the composability of services.6 In this context, “composability” means stablecoins can function as self-contained building blocks that interoperate with smart contracts (self-executing programmable contracts) to create payment and other financial services.7 These two key features underpin the current use cases of stablecoins and support innovation in both the financial and non-financial sectors.
> The public algorithmic stablecoin sector is highly innovative and difficult to categorize. However, one can generally think of the design of these stablecoins as based on two mechanisms: (1) the collateralized mechanism and (2) the algorithmic peg mechanism
did we not just print billions of extra dollars out of thin air…?
Surely that must have some impact on inflation or the world economy in some sense
No real dollars are being created anywhere in any of this - it is all simply a astonishingly complicated mechanism for transferring wealth from the marks to the scammers (and to pay some enormous electricity bills).
For example, printing USDT out of thin air and buying BTC with it supports the BTC price, this BTC is then brought onto the Tether books to back the newly printed USDT. The scammers then sell their own BTC into this price rise, receiving USDT which they (as privileged USDT account holders) can turn back into real dollars. The real dollars of course are coming from the marks who see BTC rising and dump their life savings into it, needing to buy USDT in order to buy the BTC.
It is almost beautiful in a way - and absolutely should be shutdown real soon now.
Purely algorithmic stablecoins are a joke so far, whereas algorithmic overcollateralized stablecoins are doing great. The other even bigger ones backed by dollars somewhere.
As with the traditional heat pump there is a working fluid - the coins. These coins have a price (in dollars) - this is their temperature.
The market is cycled just as a heat pump, with the working fluid being squeezed by buying pressure to raise the price, then released by selling to reduce the price and start the cycle again.
By controlling the cycle (e.g. by printing USDT out of thin air), the scammers ensure that the marks are buying in when the price is high, because they believe it will continue rising, and sell when the price is low, because they fear a further drop. Thus money is pumped from the marks to the scammers.
MOON->FOMO->HODL->DUMP->MOON->
MOON - scammers buy in to start raising the price. Early marks start entering and the scammers can reduce their buying as the price takes off.
FOMO - late marks come in wanting some of the action. Scammers are now shifting to selling, with max selling as the top is reached and marks buying power becomes exhausted.
HODL - price is dipping, scammers still are selling, but marks are holding expecting prices to recover.
DUMP - heavy price falls are now frightening the marks, who start closing their positions. Scammers are quietly hoovering up the excess, and gradually put a floor to the price.
Repeat.
Note that the scammers coin holdings are conserved across the whole cycle - but because of the price differential between their buying and selling phases, they make a profit over that cycle.
BTC has gone through 2 such cycles in the last year or two, maybe it is just entering the MOON phase again now?
Like why can't/shouldn't the government claim that a USD "coin" is just another name for... USD? And therefore maintaining a balance or reserve of it is equivalent to maintaining a bank account? (edit: or maybe I should say "fiat deposit account", which may not be FDIC insured)
USDT is a proof that some shady unregulated organization owes you an equivalent amount of good. "Backed by USD" is just a claim (99% lie, in reality).
Assuming the organization behind it appears to be good for the 1/1 USD/USDC exchange at all times that system works, but stuff gets weird if that peg ever moves.
Its basically saying "wow DeFi is amazing".
at this point I'm not sure who else other people need to hear it from, but let's see.
- Gov can easily collect consumption taxes through transaction fees
- Make transactions completely anonymous (similar to cash)
- Ease government infrastructure as we no longer need to print physical currency that can be lost or destroyed. Also potentially helping with counterfeit money. I'm also assuming coins would be pre-mined.
The major disadvantage I see is: Gov could reduce anonymity and further invade privacy of everyday citizens. I see this as too much power the dream of authoritarians.
I don't think you would need the public/private transaction paradigm (like zcash). We can watch transactions from wallets and know the owners without knowing who transactions are going to. This would operate the same way cash businesses operate. In a business wallet you'd still have to report everything on your taxes. We can still see when businesses make and lose money by tracking just their wallets. I think the best way to do this is not have wallets with special privileges nor privileged transactions. If we have to explicitly make transactions private they can do the same thing they do with encryption: "only bad guys use encryption because they have something to hide".
This is basically saying everyone can get more money because the Fed is less bound by its cash liabilities. This could allow them more direct control over the money supply which is less tied to physical cash deposits. Cautiously optimistic here but this seems like a good thing overall.
One problem scenario: banks invest more with larger balance sheets. What if those investments fail? Now they have liabilities for their deposits which are backed by stable coins which, in turn, are backed by the Fed, which has slightly more cash than before (due to households replacing cash with stable coins) but likely not enough to cover the difference. Could this be a problem or would the Fed simply print more stable coins?
Stables have the transferability properties of crypto (borderless, fast, no counter-party risk) without the downside of the erratic price fluctuations. A common critique of crypto is that it's too volatile to be paid in, or spent day-to-day, which is fair. Stables solve that mostly.
Other issues with backing/reserves and who is getting rich off the interest are important but I feel that stables are a valuable piece of the financial space and I hope they can be regulated lightly to eliminate some of those black-box characteristics.
[Edit] And now that I've actually read some of the paper it makes sense the Fed would be ok with backing some stablecoins with reserves. It provides the government a way to get a taste of an invisible tax on it via inflation (as all stablecoins are exposed to inflation).
Another angle I had not fully comprehended before is the governments complaint that stablecoins are only fractionally backed. While the reserve system is obviously a fractional reserve system, crypto represents solely the cash component of that system just as the US dollar does. Crypto does not represent a reserve split circuit money system. So, in order for crypto to operate as a fractional reserve it is doing something distinct (and a little more dangerous) from our current reserve system and hence why crypto is getting heat for this behavior.
And of course any currency system operating freely outside of the reserve system is a challenge to the Fed's authority so there will naturally be pressure to get crypto tied in somehow. The Fed's other paper released this month with the open call for CBDC feedback would seem to tie nicely into this one. In that paper they quickly realized that they needed to take over that last 10% of the US population that don't use banking services in order to successfully kill off cash. The other branch of that problem they did not discuss in that paper is tying crypto into the reserve system.
We're doomed the moment Congress blesses the Fed with the legal authority to issue CBDC backed by reserves. It's coming.
https://www.federalreserve.gov/publications/files/money-and-...
https://headlineusa.com/bank-of-international-settlements-ch...
