> US dollar-like liquidity and value preservation without US dollar financial regulation.
Or in other words, they'd like the benefits of regulation without the costs of regulation. Which I certainly appreciate. As a child my plan for adulthood was desserts all the time, no vegetables ever.
Stablecoins have totally valid use cases in the crypto ecosystem that don’t involve skirting regulations. People want something that isn’t volatile. It takes days to deposit and withdraw actual USD from exchanges and requires centralized entities that charge fees (or are totally untrustworthy as we’ve seen). Contracts and dapps can hold and interact with USDC to create useful applications that aren’t just speculative investing.
Morgan Stanley ised to take a couple of days as well to wire Euros to my bank account. Never ever was that an issue, or something I wanted to solve by using an almast-but-not-really Euro, or Dollar.
It’s not really any less of a dollar than any other dollar is. All of our digital dollars are just bank liabilities. Circle and Tether are just banks with dollar liabilities. Their liabilities can be transferred on crypto networks rather than traditional bank wires.
> Circle and Tether are just banks with dollar liabilities.
But no regulatory oversight, and no chance for the common folk to prosecute or get their money back if they default.
I am one of the resident crypto apologists here on HN, but there is no way that we should even try to accept what the big exchanges are doing. The whole point of crypto is to have systems that do not depend on "too big to fail" institutions, why are we suddenly trying to find excuses for their BS?
Tether has no meaningful regulatory oversight. Circle has money transmitter licenses in most US states, some of which cover them as a virtual asset service provider, and require specific conditions around the way that they store customer funds: https://www.circle.com/en/legal/usdc-terms
I'm not claiming this is perfect, but it's pretty different.
That's great, but that only eliminates 2-3 classes of fraud from their potential thousands of exploits. We put too much trust in centralized companies to manage decentralized communities, and I'd bet you dollars-to-donuts that Circle will end up complicit in some sort of scheme.
Not trying to make excuses for any of these companies. I'm just saying, in the abstract, there are lots of reasons why an end user would want a stablecoin besides "avoiding regulations". Even if it weren't pegged to a national currency, there is value in having a digital currency that limits its volatility. Pegging to another currency is a shortcut for doing that w/o needing decentralized monetary policy.
Basically these people are trying to get the benefit of digital currencies without the downside of volatility. Somebody else will have to take the volatility risk. This is easy to do when the crypto currencies are going up in value, and almost impossible to do on the downside.
And yet most stable coins have maintained their peg for years now, despite many of them having gone through 2 large bear markets. If 80%-90% down and still pegged doesn't disprove "impossible to do on the downside" I don't know what could.
Clarification: I do think Tether is not fully backed and is likely to depeg some day, but the assertion that it's "impossible to do on the downside" is clearly not true even for Tether. And it's very clearly not impossible to keep a peg if the peg is fully backed, which may be the case for some coins (without naming specifics). DAI, backed by verifiable collateral, has also done extremely well through 2 bear markets.
> I do think Tether is not fully backed and is likely to depeg some day.
Which is a good reason to get out. Stablecoins have only two stable points, 1 and 0. When they crash, they go all the way. Look at what happened with the stablecoins that already crashed.
Maybe but not necessarily. I can log in to Coinbase and buy USDC with dollars in my bank account, use the USDC in a variety of decentralized applications or contracts, and then exchange my USDC for USD again via Coinbase. It’s similar to going to the bank and withdrawing cash, and it has no inherent volatility or downside risk.
Sorry, I did not mean to insinuate anything resembling cover for these stablecoins. I do not own any and I never would. In fact, I only own Bitcoin and I don’t keep any on any exchange at all. This is the only way I would ever recommend when interacting with cryptocurrencies.
It is less of a dollar, because I can say you can exchange it for a dollar when you can not, in fact, exchange it for a dollar when you try to,because I never had enough(or any) dollars. In the real world when the bank runs out of dollars the government will give me dollars instead.
I think that is a fair critique, but that will be coming at some point, very likely. Either a law requiring 100% liquid reserves, or a law bringing them into the FDIC system.
Not volatile? The point of stablecoins is they’re supposed to match the USD in value. By definition they are more volatile than usd as they are pegged to it and vary in price
> By definition they are more volatile than usd as they are pegged to it and vary in price
I understand your reasoning, and you're correct in this case (assuming your numeraire is USD). However, if your numeraire is something like a GDP-weighted basket of USD, EUR, JPY, and CNH, it's possible for a USD-pegged asset to be less volatile than USD (since your unit of account isn't USD).
Note that if the above is the case, that would imply that the tracking error of your USD-pegged asset is correlated to the non-USD components of your numeraire. In a risk-off/flight-to-quality environment (depending on the exact circumstances, but in general) you'd expect EUR and CNH to drop in relation to the USD and often JPY to rise in relation to USD. The opposite would be expected in a risk-on scenario.
Presumably, your USD-pegged asset would drop in relation to the USD in a risk-off scenario and rise in a risk-on scenario, so in that case it would seem that your tracking error would tend to be correlated to the non-USD components of your numeraire basket. So, if macro risk-on/risk-off are the primary drivers of your pegged asset's tracking error, it would seem that your pegged asset would tend to have less volatility than USD if a GDP-weighted basket of major currencies is your unit of account.
My first and only experience with stablecoins was when I moved a bunch of Stellaris into one and when I went back to do another transaction a few days later its value had been reduced to zero for 'technical reasons' that I am still unable to comprehend. Whoever was operating it basically helped themselves to a year's worth of investment gains, which soured me on the concept.
If a stablecoin is fully backed by USD, why does it exist?
The only reasons for these coins to exist are:
1. Avoid proper financial controls and regulations imposed on real currencies and operate illegally.
2. To separate fools from their USD and replace it with USDT or whatever.
This is akin to asking why commodity futures exist. It's an abstraction that provides utility. In the case of commodity futures, it allows commodities to be traded on an exchange where bags of onion seeds would otherwise be difficult to trade. In the case of USDC it allows USD to exist on the blockchain so that it can interact with smart contracts.
Believe it or not, if you want to invest in gold, the only option isn't buying and storing physical gold in your home. That might even be a dangerous idea.
Stocks are certificates which claim partial ownership of a company. But how can owning a piece of paper be like owning a part of a company? What is a company anyway but an abstraction over the concept of group liabilities, assets, contracts, and actions? Or do you think companies only exist to allow people to break laws under another identity?
> In the case of commodity futures, it allows commodities to be traded on an exchange where bags of onion seeds would otherwise be difficult to trade.
That is not essential to what futures do. The essence of a future, is that it is a trade that is agreed upon today, but which settles in the future. I sell my corn to you at a price we agree on today for delivery in 3 months. That allows producers and consumers of commodities to reduce risk, while speculators can increase their risk.
Also -- weird but interesting -- the https://en.wikipedia.org/wiki/Onion_Futures_Act bans trading futures contracts on onions (and motion picture box office receipts). Not sure if that would apply to onion seed.
Thanks for the usual collection of talking points from 2017 that nobody uses in the real world. There is no utility to these blockchain tokens except to scam others.
Americans that frequently need to transfer money (especially overseas) may find stablecoins a good way to effect that without bank fees and delays.
Other countries may not even be allowed to transfer from their bank overseas (I think China in most cases). Some countries have local currency that is devaluating, and banks that are less reliable than a mattress. Some countries have restrictions on the way that money can be stored or retrieved that basically mean that money deposited in the bank can not practically be withdrawn.
For some, the stablecoin is simply a more convenient bank that the one in the city, and in many cases they anyways don't have reportable income.
Other reasons exists for a stablecoin besides criminal activity, especially for people that live in poorer states - and these people are harder hit by losing their cash than would be someone who is in crypto for the ride. It is disingenuous to think its all crypto kiddies.
he already specified it in is his comment:
> In the case of USDC it allows USD to exist on the blockchain so that it can interact with smart contracts.
if you wanna question whether smart contracts are useful or not feel free, I sure do, but drop the smarminess when the answer to your question lies within the first paragraph.
Those are not the only possible reasons for stable coins to exist.
The obvious other reason is to use them on the blockchain. You cannot use USD on the blockchain.
Maybe you don't think there's anything of value on the blockchain and that's why you don't see a use for it. I don't want to get into an argument over whether blockchain tech has a use case or a future in this comment chain, but for the sake of understanding what stable coins could be used for just grant the following:
- There is some use for ETH out there that doesn't involve avoiding financial controls and regulations or separating fools from their USD
If you will grant that, then it's easy to see why here would be a use for USDC or similar. ETH price fluctuates. If you need to be able to utilize Ethereum, it's helpful to have value on it. If you don't want that value to fluctuate, you can hold it in USDC and convert to ETH when you want to use it. Plain and simple, this is the first application for stable coins.
If you will not grant that there is a use case for ETH then there's no point in having a discussion about stable coins anyway. That's a separate discussion that needs to be had first.
It's obvious why it exists. Dollar liquidity inside of the crypto network ecosystem. You can quickly move out of volatile assets into stable coins. You can transfer these stable coins quickly into and out of wallets and contracts. You cannot do either of these as efficiently with pure fiat which would then require an "IOU" from an exchange which would be less transferable, require trust of the exchange, and would insert friction moving into or out of the $.
If you want to use dollars in a smart contract or otherwise in the crypto "ecosystem" (holding them in a wallet), they are useful. If I were Goldman Sachs, I would have made the "GS Cryptodollar" by now, but we're stuck with weird and untrustworthy stablecoins like Tether and USDC.
By the way, the concept of a "stablecoin" (defined as a currency located in a separate financial system than its home) isn't new - you can buy eurodollar futures which are futures on dollars that are physically located in Europe. Ironically, you can also buy euroeuro futures contracts which are for euros located in the US: the euro- prefix on a currency just means "not delivered inside sovereign borders, although the European eurodollar is by far the most important of these.
More like they trusted two (well actually three if you count US gov) centralized entities instead of one. It's like asking permission from both momma and pappa to eat desert. They should have just depended on the single entity backing USDC rather than putting themselves in a situation where they'd be also be fucked if Binance froze by leaving their tokens on exchange.
When you put USD backed stablecoin on exchange you're trusting
1) Exchange won't fail
2) Backers won't fail
3) US gov won't fail
Any single one fail and you're fucked. America decided dollars should float in the 70s, and most of the world followed. IMO sooner or later crypto will end up all floating because pegging relies on centralized points of failure and eventually people will tire of getting wiped out.
> America decided dollars should float in the 70s, and most of the world followed.
Except that a bunch of countries in Europe went back to pegged currency with the Euro[1]. Part of the reason the 2008 crisis hit countries like Italy, Greece, and Ireland so hard.
---
1. Yes - the Euro is not technically pegged; but effectively, it's the same thing. Each individual country in the Eurozone can't engage in independent monetary policy.
I mean, the US Dollar is a "pegged" currency under that definition too. A while ago I read an economic analysis that said the US would optimally have five regional currencies (instead of the single one that it has today) to account for internal trade and wealth imbalances.
What makes the US dollar work in practice is the active role the federal government takes to internally rebalance the economy through taxation and spending, particularly with defense spending and social programs like Social Security, Medicare, and the FDIC. People in wealthier states (including myself) like to complain that we get a bad deal because we get less back from the federal government than we pay in but that's a crucial feature of the system that keeps it from getting too unbalanced.
Additionally, in the US the federal government (for all practical purposes) is not required to maintain a balanced budget while the state governments are. This constrains the ability of state governments to issue too much debt while still providing a relief valve for emergency spending needed during economic downturns or other crisis (such as the COVID-19 pandemic).
I expect that sooner rather than later the countries that have adopted the Euro will evolve a similar system, shifting the bulk of the costs of their social programs (pensions, unemployment insurance, medical care, banking insurance, etc.) to the EU itself and giving the EU the power to tax and borrow as needed to maintain those programs. It will be a hard sell to Europe's wealthier economies, since it would be a major transfer of their wealth to Europe's poorer economies, but I suspect a future crisis will force their hands if the alternative is the dissolution of the EU (Brexit has shown everyone how badly leaving the EU can hurt).
> A while ago I read an economic analysis that said the US would optimally have five regional currencies (instead of the single one that it has today) to account for internal trade and wealth imbalances.
That seems pretty silly on its face, but I suppose I've been persuaded of stranger things with a good argument.
> I mean, the US Dollar is a "pegged" currency under that definition too.
Yes and no. My point about pegging a currency really is about organizations that tax, borrow, and spend a currency they control. So the US Government has nothing to worry about in that regard. But all of the sub divisions definitely do - various states, counties, and cities regularly flirt with bankruptcy from time to time.
> I expect that sooner rather than later the countries that have adopted the Euro will evolve a similar system, shifting the bulk of the costs of their social programs (pensions, unemployment insurance, medical care, banking insurance, etc.) to the EU itself and giving the EU the power to tax and borrow as needed to maintain those programs. It will be a hard sell to Europe's wealthier economies, since it would be a major transfer of their wealth to Europe's poorer economies, but I suspect a future crisis will force their hands if the alternative is the dissolution of the EU (Brexit has shown everyone how badly leaving the EU can hurt).
I think, that will be a difficult decision point for the EU. I'm just not convinced that enough members want the "United States of Europe". National identity is much stronger in Europe than it ever was in the American Colonies pre-Constitution.
It will be the last in the long chain of decisions that will span over a few decades, and as such will likely be digestible for the majority. EU was never fast, but at the same time it was consistent in integration effort.
The Euro was introduced 23 years ago. It has successfully weathered one domestic crisis in addition to the dot-com bust and the 2008 US banking meltdown. Its exchange value has been stable and the Eurozone economies have fared better than, for example, the UK.
I'll take the Euro over any cryptocurrency any day, thanks.
On a PPP adjusted basis Italy/Spain/Portugal are no richer than they were 20 years ago. They can no longer devalue their currency like they used to when they ran into trouble.
In terms of the Euro, I find it more useful to view the Eurozone as somewhat similar to the US. There's one central monetary policy for really large economies that in a different environment, would have liked to do things independently. It's especially relevant now as US states have GDPs comparable to the Eurozone constituent nations.
> In terms of the Euro, I find it more useful to view the Eurozone as somewhat similar to the US. There's one central monetary policy for really large economies that in a different environment, would have liked to do things independently. It's especially relevant now as US states have GDPs comparable to the Eurozone constituent nations.
There is an enormous difference, though: internal mobility/identity.
Germans tend to strongly prefer living in Germany. Greeks tend to strongly prefer living in Greece.
People in Oregon and New Hampshire tend not to have very strong affection for their state.
Which means that, if one area is economically depressed at the same time that another area is booming, the problem tends to sort itself out as people move from the struggling area and to the prosperous one.
In Europe, that just doesn't happen to nearly the same extent.
> People in Oregon and New Hampshire tend not to have very strong affection for their state.
Did you miss the article last week on HN where 60% of American adults live within 10 miles of where they grew up? People in the US absolutely have a strong affinity for their states. Just as in the EU, they may choose to leave for better opportunities however.
People in Oregon and New Hampshire tend not to have very strong affection for their state.
This sounds like the opinion of a European who has never actually lived in the US. People are much more married to their states than it seems that you'd believe.
While someone from (say) Connecticut might not think much of moving to Maine, they would probably feel different about moving to Iowa, Washington, or Alabama.
Here's one of the various maps I've seen of US cultural regions: [0]
It seems to be accurate for the areas I know anything about; I can't speak for it in other places.
Just bringing your stuff with you from one state to another could make you a felon, making people very locked in from moving across certain states. Someone in Idaho would become a felon for bringing their (Idaho legal) AR-15 into California while the person in California would become a felon for bringing their (California legal) weed plant into Idaho.
A lot of these states have backdoor ways of keeping out culturally incompatible folks from moving state to state by making mere victimless possession of certain items disproportionately linked to certain American cultures into felonies.
Lots of young people in Greece who actually want a job and career prospects move.
This is not new in the 17th century Dutch VOC ships were crewed by destitute Swedes and Germans. Mobility in Europe is high which is why you can get excellent baklava and spaghetti as far as Helsinki. This is why the European Union makes sense.
I can't comment on Europe simply because I haven't lived there, but in my experience the US isn't at all like you mention. Sure, there might be states where people are willing to move, but if you think of cultural regions more and states less, people never leave certain areas their entire lives. I'm talking about areas like PNW, New England, Upper Midwest, Southern states and so on. This is very similar to your case, it is just that the US is far more fragmented in some sense, and some states can be similar to others.
California and Washington are the major sources (of course!) but (1) California is not PNW, and (2) places other than CA/WA contribute many more migrants.
A bunch of currencies were pegged to a virtual euro a few years before its actual introduction, but those currencies do not exist anymore, so to say they are still pegged doesn't make any sense.
Comment is saying that having Euro as your currency is, in some ways the same as pegging your currency to the Euro. As in “1 Ireland Euro” equals “1 German Euro”.
America went back to floating in 1971. The convertability with gold was only around for 17 years [1]. I don't know why that's relevant to USDC - there's no absolutely stable store of value, everything fluctuates.
And it will eventually because the FED turned off the fractional reserve requirements.
On March 15th, the Fed lowered the fractional reserve requirement to 0%.
Yet, since that day banks have been hoarding cash like never before. pic.twitter.com/jpYF4Ypzjq
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) April 13, 2020
So, a bank can lend out what ever it wants. This is why inflation is high all over the world and the currency milkshake theory is playing out.
"Here's a simplified version: All currencies are doomed because they're not actually valuable. The dollar is slightly better because it's the favorite child. When the Fed stops making more dollars — the frothy “milkshake” — demand for existing dollars goes up.Jul 19, 2022" -- Bloomberg
Or in other words, they'd like the benefits of regulation without the costs of regulation. Which I certainly appreciate. As a child my plan for adulthood was desserts all the time, no vegetables ever.