[HN Gopher] Two thought experiments to evaluate automated stable... ___________________________________________________________________ Two thought experiments to evaluate automated stablecoins Author : bpierre Score : 122 points Date : 2022-05-26 17:42 UTC (5 hours ago) (HTM) web link (vitalik.ca) (TXT) w3m dump (vitalik.ca) | Traster wrote: | I'm finding it difficult to engage with the "Let's pretend USD is | a ponzi scheme" pre-condition of some of this. | | I also think that the premise that RAI is distinct from ETH is... | tenuous. The problem that UST-TERRA had was that it was trivially | the same, but that means what we're saying is that if RAI | succeeds to any significant extent then it puts ETH in a | situation where it may also death spiral. I feel like I'm | agreeing with Vitalik there. | | >Another extreme case worth examining is where RAI becomes the | primary appliation on Ethereum. In this case, a reduction in | expected future demand for RAI would crater the price of ETH. In | the extreme case, a cascade of liquidations is possible, leading | to a messy collapse of the system. But RAI is far more robust | against this possibility than a Terra-style system. | | I think the conclusion of the 2nd experimnet is "Don't buy RAI". | It's just that if the return on RAI is positive, well, buy it but | know it's going to explode. If it's negative well... You're | earning a negative return well done. | Proven wrote: | > In the non-crypto real world, nothing lasts forever. | | Gold does. | | > You can have a stablecoin pegged to a basket of assets, a | consumer price index, or some arbitrarily complex formula ("a | quantity of value sufficient to buy {global average CO2 | concentration minus 375} hectares of land in the forests of | Yakutia"). As long as you can find an oracle to prove the index, | and people to participate on all sides of the market, you can | make such a stablecoin work. | | Why would I want any of that? | | I can buy real assets rather than assume that these oracles, | "Smart" Contracts, code dependencies, blockchain (network), and | developers will remain stable in extreme conditions. | | If you need stablecoin, that's because cryptocurrencies are | useless to denominate prices. We may as well use a Central | Bankster-backed coin (which no one invested in crypto wants to | admit). | | It may be harder to remain anonymous, but at least there's much | less to fail (mostly just the currency itself, which is why | buying real-world assets represented by tokens is a much better | approach). | | (The charts and formulas made me laugh - seriously? Who wants to | take Cryptocurrencies 101, read some "white paper" and do | "research" before they decide to park savings in a "stable" | coin??? Give up, it's ridiculous!) | zmgsabst wrote: | I think the value in cryptocurrency has always been tokens | which represent real goods intermixed with a digital, | distributed transaction network. Smart contracts are a nice | bonus. | | Unfortunately, early conmen seized the helm of Bitcoin, removed | the smart contract opcodes, and led us down the "digital | (fools) gold" path. | BenoitEssiambre wrote: | Note that gold can have long run negative returns if you count, | storage costs, transportation costs, insurance costs etc. plus | it's not very stable in the short run. | cmitsakis wrote: | The 2nd though experiment about a stablecoin that that goes up | 20% per year is interesting. | | So in order to guarantee a stable price, the algorithm has to be | able to confiscate some of your coins whenever it needs. This | makes sense, but it makes stablecoins less appealing as a store | of value. | m00dy wrote: | World of Crypto (WoC) has already addressed this issue [0]. | | [0]: https://www.worldofcrypto.io/blog/building-a- | decentralised-m... | Sloppy wrote: | Thought experiment #3 | | Create a hypothetical new stable coin. Issue one coin for every | dollar put into the stable coin. For every dollar subtracted pay | out the dollar and take the coin out of circulation until another | USD comes back in. Make money on exchange fees ONLY. No fair | using the coins or dollars in any other way. | | The schemes for stable coins ALL have failure mods until someone | does #3. The most likely entity to do #3 is the US treasury (or | other national entity). But if someone is willing to live with | income from fees only, they could do #3. Crypto currencies have | efficiencies enough to make this a viable option. | carlosdp wrote: | This already exists, Circle Finance + Coinbase issue USDC, for | example. It's just backed by 1:1 actual USD (at least it will | be 1:1 very soon, as in 100% reserve, according to public | statements, I haven't checked recently if that is complete). | whimsicalism wrote: | They definitely do not back with 100% paper. They hold bonds | and potentially corporate paper as well. | TuringNYC wrote: | Is there a central location where the public can see the | public statements frequently updated? I'm very skeptical | about a public filing from three months ago when collateral | was worth 2x what it is today... | ac29 wrote: | https://www.centre.io/usdc-transparency | | The extent of the detail that is given in the latest report | is that their backing assets are "limited to cash and | short-dated U.S. government obligations". | whimsicalism wrote: | Yeah, but now people have to actually trust that you are being | truthful about your backing. | enkid wrote: | How is this different from a bank account? | zmgsabst wrote: | The bank doesn't actually store your dollars and your bank | account can't make transactions on the blockchain. | lxgr wrote: | And where would the issuer of such a hypothetical | stablecoin store actual dollars, if not in bank accounts or | government bonds? | tomatocracy wrote: | Even this scheme is subject to the risk that the "issuer" of | the stablecurrrency stays solvent enough to pay the operating | costs of those trades (or at least that there is a sufficient | supply of replacement issuers and the legal system and | government where the issuer is located appropriately recognise | segregation of those assets on a bankruptcy and that it has a | low cost and efficient bankruptcy regime), or if it's the US | treasury the risk of expropriation of a change to the system | which could be different from the risk with traditional | currency. Ultimately you're taking credit and/or performance | risk on _someone_. | zmgsabst wrote: | I've been hoping we get #3 but with commodities and precious | metals. | | I want a "stable token" that represents barrels of oil, wheat, | etc or physical gold, silver, etc. | | The argument against the gold standard is that there isn't | "enough" to represent money -- but I think we'd gain a lot of | stability if prices were denominated in a basket of | commodities. | lottin wrote: | > The argument against the gold standard is that there isn't | "enough" to represent money | | I literally have never heard this argument against the gold | standard. | | What amount of gold would be needed for it to be able to | sufficiently "represent money"? | | And why do you need gold to "represent money" anyway? Isn't | gold itself money under the gold standard? | nradov wrote: | There are already ETFs which hold precious metals and other | commodities. But most commodities aren't really "stable" | stores of value themselves. Large quantities of wheat or oil | can only be stored for a few years at most before they start | to rot or decay. Storage is also quite expensive, especially | when you run out of big oil tanks and have to charter tankers | to hold the overflow. | causalmodels wrote: | Not really sure this would work. The problem with physical | commodities is that you actually have to store them | somewhere. | tomatocracy wrote: | Not to mention that there is already a small industry which | does this electronically (LME warehouses) and in a way | which is trusted by the largest traders in the business. | Why wouldn't you just use that instead? | hypertele-Xii wrote: | Having to store digital crap securely turns out to be a far | bigger problem than most people realized. | | Maybe still less than physical commodities, but let's not | pretend crypto is "free" and easy to store and takes up no | space. | SilasX wrote: | They have XAUT and PAXG as ERC20 tokenized gold. Article | (sorry if shady): | | https://www.publish0x.com/journey-to-the-cryptocurrency- | ocea... | landemva wrote: | >> The argument against the gold standard is that there isn't | "enough" to represent money | | I hadn't heard anyone seriously say that. What amount of | additional gold should be mined to fix this alleged problem? | | Since there are 84M Litecoin, is LTC 4x better than BTC with | 21M? | | https://www.investopedia.com/articles/investing/040515/what-. | .. | e9 wrote: | yes and a lot of these coins claim they are all backed but it's | just a lip service, it's too lucrative to not do full 1-1 | backing, you are right only something like US treasury can do | it. | | https://markets.businessinsider.com/news/currencies/tether-c... | betwixthewires wrote: | Sure, direct 1:1 collateralized stable coins work, but look at | the "algorithm" behind the underlying asset. | | USD itself is an interesting stablecoin, algorithmic in nature | with a board able to make decisions to change the algorithm. It | is not pegged to an asset, rather it attempts to be pegged to | an economic state, primarily an inflation rate, using issuance | and purchase of other assets. It has failure modes as well. | | Note that algorithmic and reserve based crypto stablecoins are | both exposed to this, since one is backed and the other is | pegged to it. | | So if you want to avoid that, you need to peg your cryptocoin | to something without that, i.e not a fiat currency. This is | hard to do with collateral, some gold backed coins try. Pegging | a stablecoin to some commodity or asset or index or "basket" | algorithmically is much easier, if somewhat less stable | depending on the system that is built to do it. | TuringNYC wrote: | >> So if you want to avoid that, you need to peg your | cryptocoin to something without that, i.e not a fiat | currency. | | Except is that really the issue? We're not trying to worried | that dollar slides and hence the stablecoin is worth less. | We're mostly worried that there arent dollars backing the | stablecoin to begin with. | betwixthewires wrote: | Mainly with stablecoins we are worried that there's no 1:1 | correlation between the two assets. Whether they're backed | or not is an implementation approach. | | People _are_ worried that the dollar slides, which was a | big motivator for bitcoin in the first place. But my point | is simply that the dollar is an algorithmic asset who 's | algorithm is governed by a governance body and has a | targeted value based on economic factors, and if you don't | want that, you should peg to an asset that does not have | those properties. | | If you want to do backing with dollars it's easy, just spin | up a corporation, keep dollars on a balance sheet and | you're done. Doing it with other assets if you want | requires vaults and things, it's much easier to do it | algorithmically, and the only reason reserves are easier | with dollars than with other assets is that other assets | actually exist, dollars are just a ledger in a computer, | again, controlled algorithmically and governed by a board. | pavel_lishin wrote: | Isn't this what Tether purports to do? | baq wrote: | Tether is the next Big Short of the crypto community. I'm yet | to find someone who doesn't think tether will blow up. It's | going to be an interesting week when that happens. | drexlspivey wrote: | I mean if you are so sure about that the trade is pretty | simple. You can trade USDT perpetual futures currently at | 0.9989. | | You are probably going to respond with the "markets can | stay irrational longer than you can stay solvent" meme but | I don't see any downside to this trade other than the | opportunity cost of investing your dollars somewhere else. | There is no scenario where USDT goes to $10 and you lose | your money. | chowells wrote: | You can't just short something you know is worthless. | Maintaining the position has costs, but that's not even | the problem. If the asset collapses to zero like you | believe it should, that usually comes with a halt on | trading it. That means you _can 't_ actually buy the | assets you need to close your position and profit. You | can actually be left on the hook for interest on a loan | that can never be exited. | | Making money as a result of knowing something is | fundamentally worthless is actually quite difficult. | ceejayoz wrote: | > I don't see any downside to this trade other than the | opportunity cost of investing your dollars somewhere | else. | | Shorting comes with interest fees for the borrowed asset. | If Tether holds off a collapse for a few years, that can | get substantial. | TuringNYC wrote: | Thanks for this comment. | | Sorry for my naive response. | | Which product exactly are you speaking about? Could you | link to the product and/or exchange where "USDT perpetual | futures" are traded? I can see BTCUSDT futures (but then, | you're taking another risk on BTC itsself sinking), is | there a way to short-USDT-long-fiatUSD? | Animats wrote: | _" What happens if we look at a stablecoin from the bold and | radical perspective that the system's ability to avoid collapsing | and losing huge amounts of user funds should not depend on a | constant influx of new users?"_ | | Buterin's idea of humor. | krick wrote: | I mean... he is absolutely right, what's your problem with | that? Do you think this proposition is radical indeed? If so, | it shouldn't look like a joke to you. Or do you think it isn't | bold and radical, but an obvious prerequisite for a sustainable | stablecoin? Well, then it is really funny, because people are | investing fucking millions into a bucket full of holes, without | bothering to notice that water is gushing from its bottom like | crazy. | Traster wrote: | That's the humour, it's not "bold and radical" but obviously | true. | krick wrote: | First off, I'm not that impudent to assume that it must be | "obviously true" for the GP, so I have to review both | possibilities. Second, as I already said, if it's | "obviously true" then I don't see what GP's problem is, | since it actually is funny. | cuteboy19 wrote: | The joke is that all crypto is like that. No coin has any | actual utility (incl eth). As soon as the supply of greater | fools dwindles, the price crashes. | | With stablecoins the crash is more spectacular because they | are binary nature. Either they are equal to $1 or $0. | randomran01234 wrote: | Eth can and often does drop without impacting USDC, DAI & | others. The overall network and process of filling blocks | continues just fine. | krick wrote: | Well, you can also say that all modern money is like that. | USD is worthless. As soon as supply of fools that believe | you can actually exchange it for useful stuff dwindles, the | price crashes. | | So, no, this isn't the joke and this isn't the point. | Either you accept the assumption that crypto has some | utility, or you don't (i.e. you either truly believe that, | or agree to play the game temporarily, because you believe | you can jump off before the assumption becomes false). If | you don't -- then don't bother with that, it isn't your | game anyway. If you do: well, now we can discuss | algorithmic stablecoins. They aren't something you are | supposed to believe in, they are supposed to be some clever | technology that secures the constant price (i.e., the peg) | for them, relying on some supposedly safe assumptions. The | thing is, it is a relatively new technology with a lot of | buzz and not so much proven facts, so if you want to play | the game, please review these assumptions for yourself and | see if they seem to be safe indeed. This is best done with | some thought experiments. | betwixthewires wrote: | I like the write up, I think it articulates some principles well. | | I saw all the shitting on "algorithmic stablecoins" and found it | a bit absurd. Not all algorithms are the same, this is plain as | day. Not all game theoretical systems are identical. One very | badly designed system fails, predictably, and all of a sudden | every system that (conveniently) doesn't include a custodian is | snake oil. | rmbyrro wrote: | Forgive my ignorance: What the heck is RAI? | | He throws that at some point in the article out of the blue ... | clint wrote: | I used the website google.com and found this: | https://reflexer.finance/ | lkrubner wrote: | The user @Proven has a comment that was downvoted and is now | dead, but I'm not sure why. The comment seems reasonable. At | least this part, I agree with: | | ---------------------------- | | I can buy real assets rather than assume that these oracles, | "Smart" Contracts, code dependencies, blockchain (network), and | developers will remain stable in extreme conditions. | | If you need stablecoin, that's because cryptocurrencies are | useless to denominate prices. We may as well use a Central | Bankster-backed coin (which no one invested in crypto wants to | admit). | | It may be harder to remain anonymous, but at least there's much | less to fail (mostly just the currency itself, which is why | buying real-world assets represented by tokens is a much better | approach). | [deleted] | lekevicius wrote: | For cryptocurrencies with fees priced with gas, price | volatility is not a problem. As the price grows, number of gas | units per operation will likely go down, but will maintain its | "stable currency" price. | | Ether's price doesn't have to stay fixed. It can grow or fall, | increasing or decreasing economic security of the network | (assuming Proof of Stake). There is no good way to ensure price | stability, and there's no reason to. We don't complain that | stock prices change. | | That's why smart contract cryptocurrencies have stablecoins: to | address "stable use case". But this is just one of many | possible "dapps", many don't need external peg to function | (NFTs can be priced in the volatile ETH just fine). | colechristensen wrote: | Central banks and large institutional banks are researching | blockchain solutions for many of the things they do, not for | the rebellious crypto reasons but because a distributed ledger | with crypto guarantees can actually be a lot simpler to manage | than a bunch of mainframe business logic developed decades | past. | | This would be less for consumers paying for things but the many | methods banks use to settle accounts between themselves. | | Example: | https://www.bloomberg.com/news/articles/2022-05-26/jpmorgan-... | sofixa wrote: | Nope, that's entirely for PR reasons. For some reason | "blockchain" is still hype. Does it even matter there's a | blockchain if it's centralised at a single party? | | Central banks are looking in digital currencies (the so | called CBDC), but blockchain is completely useless for that. | okwubodu wrote: | It makes the most sense when you're managing liquidity | between multiple parties. I bet it would still be a logical | next step if they couldn't get a PR boost off the hype. | bombcar wrote: | If you have a group that has a trusted party (even if | said party is one of the group, or a new group made from | the group itself), that party can just run a bog-standard | database and there's no need for a blockchain. | okwubodu wrote: | Of course, it's an architecture decision. They do | different things and different considerations may lead | you to one or the other. | cuteboy19 wrote: | Please understand that these types of decisions come straight | from management so that they can tick off a box somewhere | with the word blockchain. You may have heard this bank invest | in IoT and AI/ML solutions as well. It's just buzzwords. | | There is no technical reason why this needs to be on a | blockchain and it is very likely that the ""blockchain"" is | run on some mainframe or 'private cloud' because that is how | banks do tech. | MrStonedOne wrote: | Proven's comment is dead because they are banned. on hackernews | banned users can still comment, but their comments start out | [dead] until vouched. (comments that get downvoted and flagged | enough also go [dead], as do comments deleted by HN mods) | | if you have enough karma, you can vouch for banned user's | comments by clicking the vouch button, it only shows on the | direct page for the comment, you get by clicking the date of | the comment. | | I know all of this because I am banned. | pcthrowaway wrote: | Why are you banned? What's the process for being unbanned? | f38zf5vdt wrote: | What dang taketh, he giveth back at his discretion. | archon1410 wrote: | you spooked me with the last line. very dramatic--the imagery | is of talking to an old man in a cemetary. | medo-bear wrote: | people constantly see blockchain as a currency replacement. | while this is a consequence it is not its raison d'etre. | instead it is a decentralized, bank-less, accounting mechanism | with its own denomination. it is up to you if you see value in | this or not. i personally see value in being able to move my | assets with involvement of a minimal (preferably but not | necessarily 0) number of third parties | pfisherman wrote: | My understanding is that a blockchain is a distributed, | publicly inspectable, append-only database is IRB some | special properties. Is that not accurate? | cuteboy19 wrote: | there is no incentive to run it without the currency part. | you water it down further and it just becomes git | medo-bear wrote: | yes or any vc, or an incoming/outgoings journal, or a bank | account ... except ... trustless and decentralized | cuteboy19 wrote: | I mean git is also trustless and decentralised | fleddr wrote: | That's just a misunderstanding of why (most) people use | stablecoins in the first place. It's not ideological, it's | practical. | | When you sell crypto and want to exchange it for "real" money, | say USD, some exchanges don't support that, they only support | crypto to crypto conversions. On exchanges that do support it, | it's sometimes slow and often comes with a fee. Both the | exchange and your bank may impose arbitrary limits on it. It | may create a taxable event. | | By comparison, a crypto to crypto conversion (say BTC to USDC) | is instant, often free, and without much limitation. | | If actual USD had none of the above limitations, nobody would | need or use a stablecoin. It's a utility, not some bet against | the dollar. | Hallucinaut wrote: | The phrasing here seems to imply that exchanging one | cryptocoin for a stablecoin should NOT create a taxable | event. That's clearly not a long term reasonable expectation | to hold as it's an obvious loophole all tax authorities will | be looking to shut in the longer term. | Karunamon wrote: | Why should it, though? It's still just another | cryptocurrency at the end of the day. The government | shouldn't be looking for their vig until you exchange for | legal tender, and I don't see how a third-party | organization promising a specific exchange rate for the | token changes that. | fleddr wrote: | How is it a loophole? Tax applies to your capital (gains) | denominated in USD. | | Example 1: I deposit 10K USD and buy BTC for it. After a | while I sell the BTC and get back 15K USD. I've now gained | 5K in USD, which is taxable. | | Example 2: I deposit 10K USD and buy BTC for it. Next I | swap the BTC to ETH, a stablecoin, or any other crypto | token. I've gained nothing in USD. I still have 10K USD | worth of crypto. I didn't sell crypto, so there should be | no tax. | | Unless...you formally acknowledge a stablecoin to be | representative of USD. Which may have all kinds of | complicated implications. | DennisP wrote: | It's not just about central exchanges. A stablecoin lets you | use on-chain exchanges like Uniswap, loan money on chain, | etc. | | (I don't think there's a tax advantage though. I'm not a CPA | but my understanding is that in the US, any exchange of one | token for another is a taxable event.) | overtonwhy wrote: | The exchanges that don't support cashing out direct to your | USD bank are unlicensed and unregulated and they're dealing | in Tether to skirt the KYC and AML requirements that a real | financial business has to have. Those exchanges deal in scam | coins that are pure pump and dump. Those exchanges don't have | to keep client funds in reserve. | aqme28 wrote: | You're ignoring distributed exchanges like Uniswap. They | only deal in crypto-crypto because they exist only on the | blockchain. | elefanten wrote: | This is not the point. Even the most legal/regulated have | to ACH/wire cash. | | If you're a trader and want to raise your cash portion of a | portfolio it's much faster/easier/cheaper to hold | stablecoins. The cost is that it's riskier. | jazzyjackson wrote: | I don't know what you mean, for instance because Gemini | follows all the regulations, I can hold USD cash in my | account and it's even FDIC insured. Wiring back to a | checking account is an option, but I can keep liquidity | at the ready without dealing in stablecoins. | smabie wrote: | A significant usage of stable coins is also as margin for | crypto derivatives contracts. | elefanten wrote: | But ultimately for the same reason gp stated. It's easier | for the exchange to deal in all crypto | Animats wrote: | That's not a limitation of USD, it's a limitation of sleazy | crypto exchanges. If I sell stock through my stockbroker, I | can have funds in a bank account within hours. You ought to | be able to sell BTC and get funds in your account in Chase or | Barclays via wire transfer within hours. | | But no. Crypto exchanges hate to pay out real money. They | don't even like paying out cryptocurrencies to external | wallets. They want you to just bet within their closed | system. | | Real brokerages don't care whether you're buying or selling. | They get commissions either way. Crypto exchanges have a | strong bias towards your buying what they're selling. | saberience wrote: | So you can get settled by your stockbroker during a | weekend? | | Most payments providers will not settle during weekends and | most will settle at T+2 or T+1. Instant settlements and | weekend settlements are basically unheard of in the | financial and payments worlds, trust me, I work in this | world. | | Stable coins allow almost instant settlement and weekend | settlements, that's why merchants and individuals are | interested in them. | Karunamon wrote: | > If I sell stock through my stockbroker, I can have funds | in a bank account within hours | | What brokerage are you using that ignores days-long | settlement times? The only way you're actually getting this | is a margin account in the background, and that comes with | its own risks and limitations. | | And even then, it takes days for ACH to clear, or fees for | wires or debit deposit. | SilasX wrote: | >If I sell stock through my stockbroker, I can have funds | in a bank account within hours. | | Wait, what? I'm pretty sure you're exaggerating there. | Stocks have a two day settlement period. (I know because | that knowledge gets firehosed every time Robinhood/GME | comes up.) | | Last year when I sold stock in one account (Wealthfront), | for the proceeds to deposited into another, it took four | business days (edit: using ACH). When I complained on | social media, my finance friends said that was typical. | Now, it might have been faster with a wire, but it's not | the hours you talk about. | | >That's not a limitation of USD, it's a limitation of | sleazy crypto exchanges. | | It would still be an issue if you want to convert to USD | purely on the blockchain because you're interacting with | multiple smartcontracts. The USD would need to be a | cryptocurrency that lives there. | gamblor956 wrote: | Using TD Ameritrade I can close out positions and get | paid by EOD. | | ETrade and other brokers are similar (though the first | outbound payment may take extra time since they need to | run KYC checks). | Animats wrote: | Robinhood didn't have enough cash on hand for the | business they are in. | | It's not that brokers are required to wait for | settlement. They can pay out as soon as the transaction | is logged. They have the option of delaying until | settlement, but big customers don't like that, so, | usually, they don't. Online-only brokers tend to be | sleazier about this. | SilasX wrote: | So, in other words, if you want cash quickly, you can | borrow against an asset? (In this case, the unsettled | proceeds of the stock sale.) | | Good news: you can do that with smartcontracts too! (e.g. | Compound/AAVE) | Animats wrote: | No, the broker is borrowing against their own assets. | They already did the transaction. They just haven't been | paid for it yet. It's their accounts receivable problem, | not the customer's. That's what it means to be a broker, | rather than an exchange. | | Since brokers usually have transactions flowing in both | directions, it's usually a wash. | SilasX wrote: | Except that's not "what being a broker is", because not | all brokers offer that, and not to all clients. And if | you can remember back to your original comment, you were | calling _exchanges_ sleazy for not having insta- | withdrawal (which they _can't_ in the regulated markets | because of settlement time), and now you recognize this | is a service provided by brokers as an abstraction on top | of the actual exchange, not what said (non-shady) | exchange actually offers. | | Furthermore, the broker is taking a risk by extending | that credit. If it were riskless, there wouldn't be the 2 | day settlement period or the requirement to post | collateral (whose necessity everyone accepts with an | eyeroll at those who don't get it on the Robinhood/GME | threads). | renewiltord wrote: | You can sell VOO at midnight and transfer the money to your | bank account? I don't think so or at least I'm not | sufficiently privileged to do so. | rglullis wrote: | How about someone on _any other country that does not use | USD_? | | Aside from some smaller countries in South America and | others that fully adopted the USD for their economy, you | can not get exchange other assets for USD without | significant overages. | tomatocracy wrote: | Not sure this makes sense. I can exchange USD for my | local currency, GBP (including physical notes) for | _significantly_ less in commission and bid /offer spread | than crypto exchanges charge for crypto to USD. | whimsicalism wrote: | Yes, you do not live in a place with rampant corruption | and/or capital controls. | lottin wrote: | As far as I know, every country in the world has capital | controls. | rglullis wrote: | Try the same with the Brazilian Real or the Argentinian | Peso. | | Also, try doing that with more than 10k USD. | | Also, try _sending_ it to someone overseas. | lottin wrote: | Also, try smuggling some cocaine into _any_ country. | rglullis wrote: | Right, because an immigrant working in the US and helping | their family to buy a house in their home country is | _exactly the same_ as being a drug dealer. | lottin wrote: | If you're an immigrant working in the US, the rules don't | apply to you? | rglullis wrote: | Even though I could just tell you that blindly following | rules is a trait of morons and authoritarians who have a | control fetish, or go on a diatribe about "legal != | moral"... notice how I didn't say anything about not | following the rules. The point was about the cost of | doing large transfers with crypto vs a traditional bank | or currency exchange shop. You can report the crypto | transactions just the same, you know? | | (Maybe it is time to change HackerNews' name to something | more reflective of the current audience. What do you | think of _" Conformist 'R Us"_?) | tomatocracy wrote: | Yes - countries with capital controls and/or corruption | problems make life harder in many ways. But I'm not sure | I understand why stablecoins make that any less of a | problem when compared with holding USD in a US based | account - unless the point is to avoid AML/KYC | requirements. | | Same for larger amounts and sending money internationally | - I've done both quite frequently, and it's much cheaper | to do than using crypto would be. | lottin wrote: | > unless the point is to avoid AML/KYC requirements | | That's the entire raison d'etre of these stablecoins. | rglullis wrote: | In a global economy, it is a lot easier to | acquire/transact/hold stable tokens than actual USD, that | is the point. If all you care about is the developed | bubble, crypto makes little sense. | svachalek wrote: | I'm not sure why the comment was worded "some exchanges" | but notably, this is the only way that a DEX (distributed | exchange) can work. A DEX exchanges crypto directly on the | blockchain between wallets/accounts via smart contract. | These are literally just dapps (distributed apps) and no | company needs to be involved; they are the most open | exchanges of all. | bombcar wrote: | The exchanges don't want (or pretend to ignore) the Know | Your Customer (KYC) rules, which your brokerage does _not_. | | So your brokerage is fine sending you the funds | immediately. They also are fine with the audits, etc that | are required to prove that they're not playing sillybuggers | with your stocks or funds. | LewisVerstappen wrote: | Just a side note, but it's funny how the Patriot Act is | commonly decried by everyone as an overreach of | government power & invasion of privacy. | | But, when you mention these KYC laws (which were put into | place in the US by the Patriot Act), no one bats an eye | and just assumes KYC rules are reasonable. | oarabbus_ wrote: | What is unreasonable about brokerages and crypto | exchanges being subject to KYC and AML regulations? How | is that at all comparable to the government being able to | eavesdrop on my private communications and violate my 4th | amendment rights without a warrant? | supersync wrote: | KYC is the reason we have an archaic banking system while | the rest of the world leap frogs us. | | Tough to solve when petrodollars are still the reserve | currency globally. | gabereiser wrote: | Party > Policy | djur wrote: | The Patriot Act is a broad-ranging piece of legislation, | and the anti-money laundering provisions in Title III are | less controversial than other titles. | fshbbdssbbgdd wrote: | >It may create a taxable event. | | What's the difference in tax liability from trading your BTC | for dollars vs. a stablecoin? | | I'm aware that there are places where you can exchange crypto | for crypto that won't report it to the IRS, but that doesn't | change whether it is a taxable event. | | By the way, there's no statute of limitations for tax fraud. | TacticalCoder wrote: | It's been discussed several times... Many people are | "trapped" into cryptos and can not get out (for example | because their bank will close their account and kick them | out if they do anything crypto related). So in several | countries it's only when you sell for a currency that is | legal tender that it's a taxable event. It's the case in | France and, if I'm not mistaken, it's been clarified that | it's now also the case in Germany. | | It makes sense in a world where people are taking a very | big risk by selling for a "stable" coin. For the last thing | you'd want is people selling BTC for Luna / UST, and then | owing the state, say, 100 K EUR, only to then see Luna | going to zero. Some of these people would have their lives | ruined if the taxable event happens before they're able to | cash out to a currency that is "real". | | If anything the Luna / UST fiasco as shown to many that it | makes sense to only tax when something is sold for a real | currency and not for monopoly money. | lxgr wrote: | In some countries, crypto-for-crypto transactions are | surprisingly really not taxable events! | bombcar wrote: | I guess you could try to argue it is a 1031 exchange (but | that's now real estate only, basically). I suspect it's | much more that less-than-fully-compliant exchanges will | only show "inputs and outputs" and not any trades in- | between. | | https://www.irs.gov/businesses/small-businesses-self- | employe... | whimsicalism wrote: | The IRS has offered clear guidance that these sorts of | exchanges are taxable events. You could argue all you | want, but ultimately it is taxable. | nradov wrote: | Will the utility persist as governments ramp up compliance | requirements on those exchanges? So far they've largely flown | under the radar. But eventually they will be forced to do | more to comply with AML/KYC and tax reporting rules. | legitster wrote: | I've been thinking about a way hypothetical idea for a stablecoin | that uses price information. If the purpose of a stablecoin is to | aid transactions, why not flip the contract around to be | transaction first? | | I list a couch for sale _on the blockchain_. And I say I will | exchange it for 799 LegitCoin. And now the blockchain mints out | 799 LegitCoin, and auctions them to the highest bidder. And now | there is 799 sitting on the blockchain while the product is | listed as available. | | Because there will only be a 1:1 ration of coins available to | coins spendable, you eliminate the role speculation will play. | There is no rational reason for the value of the coin to rise | above the peg, but there will almost always be arbitrage reasons | to drive up the value of the coin to the peg. | koliber wrote: | I may be silly, but isn't this proof of stake, where you can | stake anything, including a couch? | cwkoss wrote: | How does the blockchain know you actually have a couch? How do | you prevent someone from listing their toenail clippings for | $1T? | all2 wrote: | I had this idea, too. The problem is exactly what you have | stated. Then you have "trusted" nodes that hold the physical | asset in hock until someone buys it. A bank, of sorts, to | hold your valuables. This bank (and its associated trust) | would issue the coinage once it receives the item in | question. | | Obviously the bank charges you for holding onto your goods | (they have to make money somehow) and for the privilege of | issuing you cash. | | Then, you have to know your banker. Can you trust Muhammid | from down the street to issue your coin? Maybe. 3rd party | services would pop up, telling you whether a certain issuer | had defaulted on delivering some hard good. Turns out | Muhammid is a stand up guy, and he delivers when people come | calling. So he takes your couch and sends you 799 LegitCoin. | | Now Muhammid has options. He doesn't _have_ to hold onto the | couch. He has a couch that _he valued_ at 799LC, but maybe he | knows someone who would buy it for 815LC. This depends on | whether the exchange is a loan or a sale. | | [edit] | | And what happens if you come back to Muhammid and he doesn't | have your asset? Now you tell one of those 3rd party | services. If there's a run on Bank Muhammid, and he defaults | on everything, his coins are worthless. Now every coin he | issued on the network is worthless. Just like small banks in | the Western United States before we had the dollar. | | Technically speaking, that means any node on the LegitCoin | network can mint a node-specific coin. The value of that coin | is not locked against any other coin. This necessitates | exchanges and means to evaluate the value of said coins | against each other. | | Because of the cost of holding goods, most banks will hold | high value assets; gold, land, rare goods, etc. And, because | of the cost of holding those goods, only wealthier | individuals will be able to trade assets for LegitCoin. | | [/edit] | | And so on. Crypto is simply reinventing existing monetary | schemes. | | Everything old is new again. | svachalek wrote: | If you expand this transaction to an entire economy, I think | this is in the neighborhood of how a central bank works. Sora | XOR is/was an attempt in this direction, where a smart contract | central bank buys and sells XOR on a curve to respond to | economic demand. (The price crashed before it could | collateralize the curve, so afaik it's never functioned as | intended) | JumpCrisscross wrote: | > _RAI 's security depends on an asset external to the RAI system | (ETH), so RAI has a much easier time safely winding down_ | | Yay, we've "discovered" currency boards [1]. | | (The thoughts on negative rates are genuinely interesting, given | their relation to present thinking on the subject.) | | [1] https://en.wikipedia.org/wiki/Currency_board | | [2] | https://www.researchgate.net/publication/282613501_History_o... | DennisP wrote: | There's nothing wrong with doing an old thing in a new, more | automated and efficient way. In this case, taking something | that's normally done by national banks, and doing it instead on | a peer-to-peer network, implemented by a handful of developers. | [deleted] | Barrera wrote: | Here's a different thought experiment. | | A sponsor organization maintains a stable coin pegged 1:1 to the | US dollar. The token is bought and sold on the open market to | keep the peg. | | Because it works so well, demand for the stable coin rises for | years on end, resulting in the issuance of trillions of dollars | worth of stable coin. Eventually the stable coin market cap hits | 50% of all US dollars in existence. Numerous audits prove that | the dollars are indeed responsibly held by the sponsor. | | Now, what specifically are the assets being held by the sponsor? | | This might seem like a trick question, but it's not. In what form | would a stable coin of that magnitude keep its assets to ensure | sufficient liquidity that the peg is never broken and can't be | attacked successfully? | svachalek wrote: | This depends very much on the definition of "all US dollars in | existence". | | If I put a dollar in my savings account and the bank loans it | out to someone else, who has the dollar? It's on my balance, | but it's in their pocket. How many dollars are there? | | This is the question of money supply, it's very complicated but | the TLDR is there is no fixed "all dollar" amount. This | scenario just further muddies the question, but also explains | why stable coins keep central bankers awake at night. | vanjajaja1 wrote: | > but also explains why stable coins keep central bankers | awake at night. | | Can you elaborate on this? | whatshisface wrote: | The sounds of the crashes are very loud and occur all | hours. | tshaddox wrote: | > If I put a dollar in my savings account and the bank loans | it out to someone else, who has the dollar? | | Note that for every dollar you put into a U.S. bank account | that's subject to reserve requirements (I believe just | checking accounts?), the bank can loan out much more than 1 | dollar, based on the legally required liquidity ratio or | "reserve requirement ratio." | | Note also that since 2020 that reserve requirement ratio is | zero. | jcranmer wrote: | The reserve requirement ratio does not do what you think it | does. It is the amount of money that the bank is required | to keep in its account at a Federal Reserve Bank as a ratio | of deposits. Note that literal cash sitting in a vault does | not count one iota towards satisfying this reserve ratio. | | Bank regulations have moved one from having such a specific | requirement. Nowadays, you essentially need a minimum | amount of equity per risk-weighted assets. So you need | something like $8 in cash for every $100 in loans you give | out. | whatshisface wrote: | That is a common misconception that got started as a | misunderstanding of Milton Friedman's (reasonable) money | multiplier equation. Banks cannot lend more money than they | have - if they could, then you could start a bank and | multiply your own money. The money multiplication that | banks can do is take the money that party B has received | for selling something and loan it back to to party A, who | can use it to buy something from party B again. | | A zero percent reserve requirement does not lead in all | cases to infinite inflation, because banks are also afraid | of a default. Bank's desire to avoid defaults adds another | fraction to their reserve ratio and limits money | multiplication even when the Fed would technically allow it | to proceed infinitely. | | Another thing you should know is that Fed chairmen have | said that Friedman's equation underestimates bank's ability | to create money, because in practice the Fed will allow any | bank that desires liquidity to borrow it. The Fed, | especially post-great-depression, will happily loan banks | however much they needed to cover their reserve | requirements, meaning that even before the ratio was set at | zero, the number of times a single dollar could be spent | was decided primarily by a balance of interest rates and | fear of defaults. | tshaddox wrote: | Is there a misconception in the text of my previous | comment? You seem to be describing a misconception that | as far as I can tell isn't one I hold or one I expressed | in my previous comment. | stonemetal12 wrote: | > loan out much more than 1 dollar | | They can't loan out more than the deposits they have. | lottin wrote: | The misconception in your comment is that the reserve | requirement is what limits a bank's ability to create | money by extending loans. | tshaddox wrote: | I'm no expert, and I know that banking is a lot more | complicated in practice, and that reserve requirements in | the U.S. (even before they went to zero) were apparently | not a significant factor in what actually put a ceiling | on banks' ability to lend. There were apparently all | sorts of tricks banks used to not be bound in practice to | reserve requirements. | lottin wrote: | Yes, reserve requirements are not a significant factor, | because in addition to reserve requirements banks are | also subject to capital requirements. Moreover banks need | reserves to operate anyway regardless of whether they're | mandated by law or not. Finally they're also constrained | by the demand for loans, which isn't infinite. | stonemetal12 wrote: | My guess is low risk debt. Most likely treasury bonds would be | the majority of their holdings. | Ilverin wrote: | Rai was initially released based on a value of 3.14 usd, it's | down from that. Since usd has experienced inflation one would | expect an unpegged stablecoin like rai to be worth more not less | usd over time. | | Vitalik's requirement for an automated stablecoin to only hold | crypto assets is quite severe. If there's a general crypto | downturn, people are going to want their money back, which turns | into a bank run. It only takes a minority of holders to want | their money back in order to create a bank run (and bank runs can | start small and get larger because the debt/equity ratio goes | down if you are already not at 100% of debt backed by equity and | if you pay holders 100% value when they get out of the | stablecoin). Basically the only reason to hold a stablecoin | instead of the underlying assets is convenience, because if you | own an automated stablecoin you don't own any upside but you do | own downside risk (e.g. Terra) | im3w1l wrote: | The code of an automated stable coin exists as a contract in | the blockchain. That code can only _directly_ measure and | influence things on the blockchain. Thus it can only directly | manage assets in the form of crypto. | | The contract can indirectly learn about things that are off- | blockchain, such as the $USD - $COIN exchange rate, but that | requires someone to input that value into the blockchain, and | use a complicated set of incentives, incentives stronger than | the one to input a manipulated one. Performing off-blockchain | actions, would require incentived agents, and be even more | difficult or even impossible. | jjitz wrote: | But you do own upside---of the collateral. | Ilverin wrote: | You're right and my above comment is wrong, but I still think | the downside risk is bigger than the upside risk. It's ETH | with 100% leverage, except beyond the risk of collapse of ETH | there is also the risk of the collapse of RAI. Either of | those happening would result in severe losses. | a4isms wrote: | But you could have that upside by owning the collateral. | | If I own the collateral, I own the upside and downside of the | collateral. If I own a stablecoin pegged to the collateral, I | own the upside and downside of the collateral, plus the risk | of the stablecoin collapsing. | | The stablecoin doesn't offer me any upside compensating for | the risk, so we are left arguing that the risk of collapse is | negligible, or arguing that there is some other benefit of | owning the stablecoin to compensate for the additional risk | of owning stablecoins instead of owning the collateral. | jjitz wrote: | You can do other things with the stablecoin. You own the | upside and downside of the collateral, and you also own the | downside of the collateral, and the upside of whatever you | bought with the collateral. | | Stablecoins are not meant to be an investment; they're for | leverage. I agree it is probably a terrible idea to borrow | a bunch of stablecoins and then just sit on them. | kenniskrag wrote: | Sometimes you can't buy the same collateral e.g. if the | basket has many elements/currencies/stocks. | a4isms wrote: | Very true, that case parallels non-crypto assets like | index funds. You own the upside and downside of the | collateral, and you are also exposed to some risk that | the company managing the funds does something extremely | stupid and/or malicious. | | I said above: | | > we are left arguing that the risk of collapse is | negligible, or arguing that there is some other benefit | of owning the stablecoin to compensate for the additional | risk of owning stablecoins instead of owning the | collateral | | In the case of an index fund, the typical purchaser is | motivated by both a belief that the risk is negligible | based on the reputation and track record of the fund | manager, plus the "other benefit" of the convenience of | investing in a single mutual fund rather than trying to | purchase the same basket of stocks at small scale. | | I agree that an automated stablecoin might offer | sufficient convenience to be attractive to some | investors, provided they consider the risk of collapse to | be negligible. | SilasX wrote: | But by borrowing against the collateral (in this manner), | you get some optionality along with the collateral's | upside: if it crashes, you get to keep the amount you | borrowed[1], thus hedging the loss. Plus any interest | earned on it. | | [1] Depending on the stablecoin's dependencies you might | want to have converted it to dollars outside their platform | first. | [deleted] | betwixthewires wrote: | Where in the write up did he state that as a requirement? He | clearly says he uses rai as an example for simplicity in | explaining the mechanisms. Explaining the systems with DAI | would've been much more difficult. | | Collateralized loans can't result in bank runs, I don't know | how you envision this working. In a downturn, people get their | collateral liquidated, or _exchange their stable tokens_ for | their collateral. | bombcar wrote: | If you're only holding crypto assets to back your stablecoin, | doesn't it eventually work out to 1 BTC = 1 BTC? (Or ETH in | this case, I guess). | ineedasername wrote: | Not if it's a basket of different crypto. You could peg it to | the overall market cap of crypto. It would then by definition | be stable in reference to itself, each token would always | represent a fixed % of the pool. It still wouldn't be stable | in relation to other non-crypto markets, but it's instability | would be relative to crypto as a whole rather than any | particular coin. | | But this is only helpful if you don't need to have your money | going back & forth between crypto & traditional investments | or currency. It wouldn't be stable relative to fiat | currencies. Relative to outside systems it would be more | stable than riskier coins but probably less stable than | something like BTC. Individual coins are still highly | correlated to the crypto market as a whole, so any single | coin's stability (or lack thereof) could still move the value | of a stable coin like this significantly in relation to | outside financial systems. ___________________________________________________________________ (page generated 2022-05-26 23:00 UTC)