[HN Gopher] Two thought experiments to evaluate automated stable...
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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.
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