The big question with Tether has been, if they are holding commercial paper, whose commercial paper? Traders who deal in commercial paper of real companies that do real stuff don't see Tether present in that market. The dollar amounts are too big to hide. The suspicion is that their "commercial paper" is high-interest loans to other cryptocurrency companies. With the whole crypto sector in decline, those loans are at risk.
This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market.
About 11% of Tether has been cashed out in the last month.
The real problem for Tether is simple. Why would anyone buy Tether at this point? There's zero upside potential, after all. And the competition, USDC and GUSD, looks better backed. So a steady outflow is to be expected. We're going to find out how strong their backing is.
Watch out for heavily promoted Tether-based "staking" schemes designed to prevent cash-out.
> Why would anyone buy Tether at this point? There's zero upside potential, after all.
Tether, and "stablecoins" in general are known as the casino chips of Crypto. A way to exchange more volatile crypto for what is supposed to be essentially dollars without creating a taxable event. Assuming crypto is still something people want to trade, that's still a valuable service. Tether isn't supposed to be an investment. It's a money laundering scheme to facilitate the other investments outside of the taxable economy and outside of KYC regulation. Seen from that vantage point, staking pools and "potential upside" is actually not desirable.
It is indeed a taxable event. People who exchange crypto for “stable”coins are generally doing so to stay out of the KYC banking realm so they can lie about their transactions to their country’s tax authorities.
I don’t know where you got this advice from but this is precisely wrong from my reading of the rules.
An asset exchange between two non legal tender assets is treated exactly the same as any other disposal and acquisition and absolutely is a chargeable event.
Please tell me this is a joke. The fact tether trades readily on an exchange is a major factor for it being convertible, even if at a price you don’t like.
>>tether trades readily on an exchange is a major factor for it being convertible
... for now
We've seen lots of the crypto exchanges fail to make exchanges for hours to days when things get hot
Official stock exchanges have a standard practice of halting trading in stocks when unusual events happen. Sometimes this cools the market and things get back to normal, sometimes the thing has gone to zero when
If Tether crashes to $0.01, I'd be a bit surprised if it didn't stop being convertible for a significant time.
i pay my taxes. i make money providing liquidity between eth and usdc.
when i'm not lp'ing, i see no reason to switch to usd so long as us-based attestations continue to be solid. the opportunity cost of being in usd on coinbase is missing lucrative nft deals.
I think a lot of Americans are in for a surprise when they finally report their gains, the IRS audits them and does a little digging ("You reported a sale of USDT, where did the USDT come from? You say you traded BTC for it? You never reported a sale of BTC."), and they find out they have owed taxes on trades for years, plus penalties and interest.
If you sell something for actual money, and use that actual money to buy something else, that sale would usually be a taxable event (well, it would be a realization event which may or may not be a taxable event, but in casual conversation just saying "taxable event" is fine).
If actual money is not involved, for example I trade my X with you for your Y, then it gets quite interesting. In the US there are generally two ways that tax law handles this. I don't know how far along the law is with fitting all the various cryptocurrency things into this.
One way is to treat it for tax purposes as if I sold X at its fair market value and you sold Y at its fair market value, and then I bought Y and you bought X. I'm taxes on my gains from that imputed sale, and take that price as my basis in Y. Similar for you.
The other way to treat it is as a non-realization event, putting off any tax consequences until I actually sell Y or trade it for something that gets handled as an imputed sale. My basis in Y is the same as the basis I had in X.
What determines which of these applies is whether or not the exchange is a "like-kind exchange". If the exchange is a like-kind exchange it gets the "swap basis" approach. If it is not like-kind it gets the "imputed sale" approach.
Sometimes this is clear cut. Suppose I bought an old guitar at garage sale 50 years ago for a couple dollars that is nowadays a valuable vintage guitar worth $100k, and 50 years ago you bought a new comic book that is now worth $100k to collectors.
If we trade, that would be an imputed sale because guitars and comic books are not like-kind.
When things are in the same category it gets much harder, and the case law is full of courts having to go deeply into philosophical questions of what makes things like-kind.
Say we trade paintings. Are all paintings like-kind? Or would a Monet not be like-kind with a Picasso because they are different artists and/or different styles? Is a male horse like kind with a female horse? Is an electric guitar like kind with an acoustic guitar? Is a comic book that is valuable because of the first appearance of a character like-kind with a comic book that is valuable because of who inked it?
You don't report income on every item you shuffle.
In the spirit of US law (since crypto is t precisely classified), if you are a professional trader, you only pay taxes on your overall annual trading profits, not each individual trade. Same as how a a retail store doesn't have gains and losses on every individual item in inventory.
No, that’s not true. The IRS has given guidance on this.
> explaining that virtual currency is treated as property for Federal income tax purposes and providing examples of how longstanding tax principles applicable to transactions involving property apply to virtual currency.[0]
Also, every crypto tax software does exactly what you say is not required. A bit of signal there.
If you use one of the various mark-to-market rules, then you may well “only pay taxes on your overall annual trading profits”, but you pay it every year on unrealized gains too. Choose your poison.
Casino chips is right. Imagine you are in a casino happily playing, and then rumors go around that the house can't cover the dollar value of the chips in everyone's hands. Pandemonium ensues.
The temptation is too great. If the stablecoin has a non-zero administrative cost, someone has to pay it. And if no-one wants to pay it, then it is going to have to invest a portion of the dollars it holds to make up the difference (and to ultimately reward the creators / seed investors).
There are probably no 100% cash-backed stablecoins.
This is the breakdown for USDC. Luckily for crypto, USDC keeps climbing the charts and USDT will be a memory soon. Bad money is always exchanged out for good.
>Jeremy Allaire @jerallaire 3/ As of 12:00pm EST Friday, May 13, 2022, the USDC reserve consisted of $11.6 billion cash (22.9%), $39.0 billion U.S. Treasuries (77.1%), for a total of $50.6 billion (100%), and there were 50.6 billion USDC in circulation
If you bought $1000 worth of 1-year treasury bills (maturing in 12m) six months ago you have less than $1000 worth of treasury bills (maturing in 6m) today. That could be a problem if you need to recover today at least the $1000 that you put. (There may be no problem with much shorter maturities - or could be worse with bonds with longer maturity. The quote didn’t give any details.)
Either way, unless they are fully backed by USD... stablecoin is just an unregulated bank and it can run.
If that's not the case, they have as much rope as they have ability to liquidate. IE they can keep buying their own coin to defend the price for as long as they can.
Imo, stablecoins are a good example of everyone knowing the score but systemic risk accrues regardless. Stabkecoins just the worst kind of risk. Low risk/reward on a daily basis. Risk of catastrophic collapse on a bad day. It's the type of risk that gets financial companies/complexes into trouble.
Properly unregulated banks are actually less likely to experience runs.
Backing by USD is not required. As you say, anything they can liquidate is good. Doesn't have to be USD. This works best when you are over-capitalised, ie when you have a thick equity cushion, so that when your assets go down in terms of USD, you still have enough balance sheet assets left to cover all your USD obligations.
You are right that trying to be stable makes things more systematically risky. If Tesla stock drops by 20% over night, some people are going to lose money, but the finance system won't collapse. If supposedly stable assets drop by 20%, everything can go wrong.
That's part of why government backed deposit insurance for banks and too-big-to-fail are problems.
Being stable just gives it a certain risk profile: regular profits, with a chance of occasional apocalypse. Modest, of course, relative to the sum "under management." Two-and-twenty. The kind of game we've been known to lose.
I don't think it really matters what the underlying assets are. Once the bank runs, it'll probably run dry. "Equity cushions" don't work. The banks own shares suck as a hedge against a run. Assets do hedge against a run. But, once a run is truly happening... it's unlikely to stop. Eventually reserves run out. Assets, credit, etc. I don't buy the idea of assets "calming" a run. In a collapse, the assets are only good as a currency to literally pay out exiting holders.
That said, it's possible to keep the game going a long time. Decades even, depending on the levels of greed and luck.
Stablecoins are still new. The derivatives death star is still not fully operational.
I'm not sure you understand how an equity cushion works.
Suppose you start a company with 1,000 kg of gold. No other assets, no liabilities. Currently, that gold is worth about 60 million USD.
Now you issue 1,000,000 'stable' tokens. Each can be redeemed for one USD. For simplicity, assume that you just give them away.
At current gold prices, your tokens are 60x over-capitalised. If the gold price collapses 90%, your tokens are still 6x over-capitalised. That's what I mean by an equity cushion.
A 'run' is everyone trying to redeem their tokens. If that happens, you just sell one million dollars worth of gold, and pay that obligation. You are not running out of anything here.
In historical practice in eg Scotland, the banks that issued private bank notes there kept an equity cushion of about 30% around. That means for every 70 pounds in liabilities, they had 100 pounds of assets on their balance sheet. (For comparison, in our example of 60x over-capitalisation, that's an equity cushion of 59/60 = ~98%. Or for the 6x over-capitalisation, it's 5/6 = ~83%.)
It's called an equity cushion, because on a balance sheet the excess of assets shows up at equity.
That equity on the books is very different from the banks shares. It's the difference between 'book value' and 'market value'. See https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile... for a table with price-to-book-values (PBV). You can also look up that value for any specific firm online.
> I don't think it really matters what the underlying assets are. Once the bank runs, it'll probably run dry.
That might be true in the most trivial sense: if a bank has plenty of underlying assets, like our example that was 6-60x over-capitalised, there will never be a run. So the 'once the bank runs' condition would never happen.
---
Technical detail: I completely avoided the question of reserves here. Mostly, because it's not actually very interesting. The bank will keep some reserves on hand, so that they can pay out routine redemptions immediately. They would be well advanced to follow the role model of the Scottish banks: their notes came with an 'option clause'.
The 'option clause' says that the bank can either redeem notes right away at par, or they can opt to 'pay' with a super-senior IOU that accumulates a punitive interest rate but that the bank can choose to pay back any time.
That option gives the bank time to liquidate assets, if they ever ran out of reserves. The punitive interest rate re-assures customers that the bank would not abuse that privilege it willy-nilly.
(Of course, that mechanism only helps with illiquidity. It does not protect against insolvency. But that's fine: it's better for the economy when insolvent companies cease operations.)
Stablecoin is only risky while you hold it. You can convert to Bitcoin or Eth to adjust your risk profile, and take profits occasionally in national currency.
Bitfinex seems like a very good business. I mean at least since 2016 - but 8 years is enough. It is possible that they still mismanaged it catastrophically - but fees are really good in crypto exchanges and margin loses are socialized - so they are not a risk factor for the exchange.
Chinese real estate companies are defaulting on their international bonds
en masse and CN government has shown no interest in bailing them on that end.
They are backed by companies with near-zero or less than zero valuation (liabilities > assets). Many of these companies that are defaulting have no money on hand but have already sold apartments that they have not even started building yet.
They are equivalent to a crypto that the market has lost faith in (both are worth nothing).
According to Advchina, the underlying asset is of such poor quality that they will be torn down or abandoned. And from my understanding owning a property doesn’t mean you own it forever. It’s time limited by the government.
Possibly somewhat. There is typically a differentiation between commercial paper and asset backed commercial paper so who knows. It might depend on the individual lending USDT.
I believe that these exchanges/crypto funds are borrowing USDT with interest payable in USD and principle payable in USDT. This would incentivise borrowers to buy USDT when the peg breaks to the down side thus keeping USDT pegged to the dollar.
I think it would be more accurate to say that USDT is not backed by anything. The loans are backed by commercial paper but if the borrowers are not fulfilling these debts in USD in reality there is no backing.
I presume the incentives that stop the peg breaking to the down side will only hold as long as the exchanges/crypto funds stay liquid. If there is a sustained mass exodus out of USDT I predict things will get ugly.
> This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market.
How does this happen again 15 years later? Is it because we ineffectively dealt with 2008? A result of the repeal of Glass-Steagall? Or have we over regulated banking to the point the miscreants went underground to build things like crypto?
I don't get it. Crashing over and over doesn't seem good for anyone.
The powers that be aren't trying to crash it all on purpose, nobody wants another 2008. They have produced a pretty hands-off response, because of a number of factors. Crypto has an explicit project to escape US regulation, so lots of money is in e.g. the Bahamas and difficult to target. Many companies are trying really hard to avoid even having US customers, so that's a hands-off win for regulation as the feds have nobody to protect from e.g. Binance directly. The big companies that do operate in the US have led a mostly successful campaign to position themselves as innovators and deserving of a long leash, IMO too successfully as only now is the SEC feeling the pressure to clamp down. There is a long tail of complex regulatory actions to take against really quite small individual operations. Finally I think a lot of this has been influenced to a huge degree by the cheapness of cash, and increasing interest rates will do a lot of the work people want to see from regulation by forcing people to make better investments and making bonds/deposits more appealing as people look for an alternative to the apparent huge risk that they're discovering they've been given a premium for taking on until now.
The answer on regulation is a mix, then. Some of it has been effective (if only at scaring off potential investor dangers completely), some of it is difficult, some of the response is underwhelming. So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect, and I still don't think it is yet, so really now's the time to take preventive measures but it's not too late for that. It is too late to protect all the people who've lost big so far, but that is a much smaller number than those who suffered in 2008. In my opinion the movers and shakers who care about worldwide financial stability are tuning in around the right time and are overwhelmingly accepting that regulation is going to be necessary. I predict the EU and the US will both push some pretty solid efforts soon; EU through explicit regulation, US through maybe some legislation but definitely through better enforcement.
Wouldn't regulating crypto need an influx of dollars from the exchanges or other liquidity providers back into the government? If that money doesn't exist or is hidden well enough regulation is only going to crash down liquidity providers and screw this people you are saying it should be designed to help.
The US is already very much ahead of most countries in regulating but not outright banning crypto. It's closer to banning it than let's say Switzerland. With the way they consider any sale a taxable event if US regulations were better for let's say the retail crypto trader as a whole they would all massively move to US regulated exchanges like Coinbase but that would remove a lot of "natural" circuit breakers like bots or manual arbits.
A lot of what people are talking about is the 90% of securities regulation that lives in the information space, regulating what must be disclosed when & to whom, and ensuring people are not deceived en masse by those running an enterprise on their behalf. 2008 was largely one of these crises -- there was fraud in the creation and marketing of mortgage-backed securities, about what was in them and what the risks were. If you have enough of those, and enough big institutions dressing up these terrible securities in even more incomprehensible instruments, big ribbons & glossy materials, and marketing them to retail, then the original fraud is compounded in effect and more and more people start being exposed to it. Imagine there are 200 active Ponzi schemes and you sell a financial product offering 10-20% returns against a background Fed cash rate of effectively zero, and you manage to keep it up by investing in Ponzi after Ponzi, reaping the yield they give and propping them up with VC money when they teeter. If enough of them fail, so do you.
If you think that sounds a lot like 2008, well, yes it is. Fortunately this time it's not gone even close to under the radar. Remember 2008 was built on a much safer financial product. Like, there were a lot of good mortgages in America, and for a while there was a healthy market for packaging them up in bonds, it just turned very sour when the bad mortgages started making up the bulk of new bonds issued to meet huge demand and more was wrung from the sponge in derivative products at the same time. The idea of a collapse was unheard-of; the market had quietly undergone huge changes with only a dozen or something people worldwide really taking notice. We're in here with a thread every few days on HN talking about the possibility of a 2008. That's a difference.
Some of the discussion of crypto regulation is more about the "prudential" side i.e. talking about some crypto entities as if they're deposit-taking institutions (like retail aka commercial banks). That's quite recent, I think it's what you're referring to by "influx of dollars ... back into government" i.e. getting them on the Federal Reserve system, getting deposit insurance, and having to be so heavily scrutinised any crypto CEO would have a heart attack in the first 20 minutes. In 2008, some commercial banks got too far into mortgage securities, failed and got bailed out. Some commercial banks doing deposits & loans got bailed out, and some even got nationalised. That protection mostly just worked as planned. Given the fact of bailouts, the risk of bailouts had to be readjusted, of course, so the new laws were about what commercial banks couldn't invest in. Lehmann was of course an investment bank. The main message is that the root causes of the crisis were not perpetrated by commercial banks, so all the new regulation around them was about trimming the risk of bad securities turning into systemic meltdowns. That's a relevant thing to worry about today but note that actual banks are pretty well protected and not really allowed to freewheel like some did in 2008. If your normal bank is investing your deposits in crypto, I would be surprised.
People worry about Coinbase because it's seen as a kind of commercial bank but not regulated as one, so it (1) gets to freewheel on investments & capital requirements like no other commercial bank in the country, and (2) has no deposit protection for those who use it. So risky twice over. Frankly I don't think Coinbase could survive with its current business model as a regulated bank, same way Uber wouldn't survive if it were forced to compete without favour & VC dried up, so forcing Coinbase to to be might trigger the very collapse being protected against (by stopping it investing in all the schemes that make it money, killing those schemes and causing knock-on), and look kinda bad. It's a tricky one. Maybe if there's enough securities enforcement against the things that are keeping the party going, the fraudulent portions can gracefully collapse on their own and the government won't have to cop the blame for bringing on the death of a pretty popular industry by prudential regulation.
> So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect
Isn't it more that the crypto + companies with cult followings + chinese real estate bubbles simply have not yet popped? These assets are big enough to cause a sell-off in other areas. Maybe they haven't dipped low enough yet, or maybe the dips are gradual enough to be absorbed.
People are convinced that since its cryto, it won't be vulnerable to the same old issues that every other traded instrument has had since the south sea bubble/tulip mania.
the 2008 market crash was similar as you pointed out, in that it involved wholesale fraud (using a subset of good mortgages to market worthless ones) that were "validated" by ratings agencies.
Here, there were no real third parties to provide ratings. Just people saying "Look its crypto, you can loose because its backed by real something or other"
Technologically distinct market, even if economically parallel, Glass-Steagall wouldn't have prevented this. The crypto companies have operated almost entirely outside of regulatory oversight prior to the last 18 months or so.
In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected.
Hence they are not regulated.
So even keeping GS (which was limited to big banks and a few similar institutions) wouldn't have made any difference. Not that keeping it would necessarily have been a bad ide...
> In this case the damage will be limited to a bunch crypto companies. The issue before was it hit companies we relied on for things like mortgages and current accounts. Crypto companies can just be allowed to fail and no one except their users will be effected.
I don't buy the argument that crypto lives in a vacuum. People valuing that asset are part of the global economy.
The question is, is crypto really as valuable as the crypto exchange markets claim, and do companies assign face value to these assets, or do they account for the amount of risk they deserve?
Value is not a single concept. The value of something to me is different to to you. And for both of us it changes over time. Value cannot really be defined, let alone measured.
So we are stuck with prices. And prices are sort of connected to value. But the connection is very non linear.
We can know the price of crypto (or gold or shares or credit default swaps). But it's value is purely a matter of personal taste...
It didn't stop. Lehmans were thrown under the bus and business continued like there's no tomorrow with more and more financial instruments created and investment bankers putting their clients money in crap positions.
> I don't get it. Crashing over and over doesn't seem good for anyone.
There's money to be made on crashes, too. And if someone got rich before, they can patiently wait. There'll be money to be made before next crash, too. I doubt the pattern bothers them. Have you heared how Buffet assigns blame[1]?
In my very uninformed opinion the financial system is a big correlation machine. People buy stuff that is mechanically and logically unrelated to their other assets. Everybody does this, but when the crash hits they have to sell those assets too, to satisfy margin calls or other obligations.
True, but they’re still a negative sum event. (Putting aside libertarian-ish arguments, ironically overrepresented in crypto, that in the long term a crash is a healthy garbage-collection event.)
Crashing early is better than crashing later because it limits the damage and moderately frequent crashes creates some level of caution in the market. Propping up a market because it's too big to fail can in some cases create worse fallout. It's a judgement call though and I'm not entirely sure we have a really good rule of thumb here.
If there were a way to have enough transparency that we had smaller crashes more frequently it would probably help to limit the damage to those who can afford to lose it.
The truth is that you can only push a correction so far out. It will happen eventually and the farther out you push it the worse it will be.
Also, I doubt you can predict a crash and make bank on it without having a whole bunch of people point in your direction. You'd have to have been speaking about it publicly prior to and have had zero inside information on some too-big-to-fail organization failing. I know people feel the US justice system doesn't hold the wealthy accountable, but I also think the wealthy are pretty good at knowing where the line is drawn. You can have all the money in the world but it's no fun if everyone's out to get you.
It's human nature to create and participate in systems that are untenable over time but are tempting for short-term speculation.
Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008.
Cryptocurrency is a new asset class, of course it's going to go through some of the painful learning experiences that traditional finance has. I've been saying since 2013 that we're going to see the exact mistakes of finance repeated with cryptocurrency.
> Normally, in advanced economies, we try to use regulation to prevent or limit these events. But crypto explicitly avoids regulation, so of course it's going to pop up there. It's got nothing to do with not cleaning up after 2008.
The point I wanted to make is when you regulate too much you may encourage the growth of things that are unregulatable. Gambling and alcohol come to mind. I don't know that that's what happened, hence the question. Phrasing it another way, are we post-WW I (over regulated) or post-WW II (got it right, but you'll never be perfect)?
> Traders who deal in commercial paper of real companies that do real stuff don't see Tether present in that market. The dollar amounts are too big to hide.
Very similar to Madoff's derivatives transactions. He was so big, but there little evidence of him transacting his main "strategy" in the market.
> This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market.
Eh, the problems in 2008 were ultimately caused by (many) central banks around the globe letting nominal gdp drop. All loans (and dividends etc) are ultimately paid out of aggregate nominal income; so obviously they are all correlated with nominal gdp: it's basically the same as aggregate nominal income.
Perhaps it's in the form of debt from exchanges. Tether could buy short-term notes from the exchanges paying them in Tether -- maybe at a slight premium to make sure the exchanges go along. The terms would stipulate that Tether could call the loan at any time allowing them to quickly pull Tether off the market as needed to maintain their peg.
How long the dance can go on would depend on the premium they've offered the exchanges and how much free Tether they've minted for themselves.
Because the most liquid trading pairs and futures use USDT. The same companies who borrow USDT from Tether happen to be the same people who run exchanges or act as market makers.
> The interesting idea behind crypto once was to have a totally different system.
the problem with this idea is that this idea of a "different" system is just merely going to evolve back into what we have today. The fundamental needs of a financial system doesn't change much, and what we have today is fit for purpose (mostly - there's efficiency to be had and red tape to cut).
> there's efficiency to be had and red tape to cut
Depends. In the USA, yes, your banking system is utterly shite, despite the supposedly numerous volume of different banks who are supposedly able to innovate and compete.
But.
that red tape is there to prevent a bank from collapsing. Its been imposed as a reaction to numerous financial crises.
There loads of rules that govern how much money a bank can loan, and how much they have to have on hand and in what classes they need to store deposits in.
A bank can be wildly profitable if it doesn't care too much who it lends to. Riskier debts yield much greater interest. The problem is, as soon as confidence takes a knock, the entire bank collapses because the value they claim they have is not backed by any kind of liquid asset.
This is the same with crypto. A stable coin is wildly profitable when people are pouring cash into it. but all it takes is a small wobble, people rushing to convert the "coin" into another asset class, and the whole thing crashes. This might be because they really don't have enough reserves to cover the withdrawl, or it was fraud. They aren't regulated, so we'll probably not know.
In my opinion crypto (i am talking about PoS with smart contracts) is about having a decentralized open source/standards cloud for financial services/ transactions. That opens up many possibilities but everything has been completely drowned out by VCs starting defi ponzi schemes and other shenanigans.
The problem is that there's adverse selection going on here: people who aren't running ponzi schemes and other shenanigans are generally content with the regular banking system, so scammers are disproportionally present in the crypto world. Given that environment, it's mostly risk and little benefit for legit users in crypto.
The killer app for decentralized finance so far is sidestepping laws. No wonder it's a den of snakes.
You share a link to a tweet with a phot of an ATM. What is your point?
What do you think it true anti-fragility in a system? Something that is built form the ground-up in a regulatory too-big-to-fail environment, or something that starts from the wilderness, gets beaten down multiple times, yet grows back up stronger than before.
I quoted the point. The hubris of Ethereum where software bugs result in the loss of money is just astounding. While obviously banking software can have bugs as well, the regulations make the consequences much, much less severe. With Ethereum, one bug, money is gone and you are done for. And as we learned, often the money is gone to North Korea. That's what hubris and cryptobros brought upon us: they made a funnel of savings of poor people caught in the hype tsunami to North Korea of all places.
Not sure where the idea that "hubris" is what causes these bugs that result in loss of funds. Sounds like a very subjective take.
Yes, it's costly to build an anti-fragile system. This is not a surprise to anyone.
Our current monetary system is not anti-fragile. We saw it in 2008. Because of these regulation safeguards you mention, moral hazard appeared and true safety has never been achieved.
Now to be clear, I am not saying this is the only way to build a monetary system. It's just one way.
>often the money is gone to North Korea.
another flavored, subjective take. You link to one such case.
You are using multiple logical fallacies in your comment, I would re-evaluate what you actually want to discuss/learn and then respond accordingly. Currently it just seems like you are angry at something.
Does this really matter though? Is it any different to drug lord having a tonne of dirty cash they can’t use anywhere because all the useful places you could put it want nothing to do with you? Watching from the sidelines, the Crypto world seems to just be morphing into the normal financial world.
Yes, it's different, because for a drug lord not being able to access some amount of dirty cash is very inconvenient, while for the average person on the flag of a regime, it may be an end
"There are a few people in the world who get locked out from banking by an oppressive regime" is just another rather unconvincing argument for crypto. Yes, let's upend the world's financial system, evolving and improving for centuries, for THAT.
Next it will be "but crypto will let you monetize your private data". Yeah no, it won't.
You can get locked out of your bank account due to institutional incompetence (happened to a friend of mine in Spain) or due to being on the wrong side of a political argument (e.g. donating to the protesting truckers in Canada).
I think there's a lot of value in being slightly harder to oppress by the political classes or arse-covering and uncaring bank managers.
And the solution is? Have a system where I can lose ALL my money by forgetting a password? Or when a crypto exchange goes boom and my life's savings are not FDIC ensured? I am sure your friend could get back in into the bank account. Being a random subject to a dumb banking accident is not the reason to upend the financial lives of billions.
If you can loose all your live savings by forgetting one password or one company going down, you made some terrible decision when it came to diversification of investments
The world in which the majority of citizens is financially literate does not exist, and "crypto" is not going to magically fix it. This libertarian free-for-all paradise will result in scores of ruined citizens, who then will have to be taken care of by society anyway. Crypto is a solution in search of a problem.
Then exercise some personal responsibility and caution. Keep your passwords carefully and don't trust certain crypto insitutions. The crypto world is indeed loaded with cases of fraud, but underneath that, here is a system of systems that lets people who do indeed get locked out of conventional financial systems send and receive funds without the permission of a central regulatory authority or some dysfunctional, corrupt political control mechanism, It doesn't always work at that, but it offers one strong further alternative. Also, how is it upending the lives of billions of people? The two things you compare at the end are not directly related and definitely not in a causative way. Wanting a further means of avoiding being a victim of dumb banking accidents doesn't make you culpable in whatever defects crypto has.
It's not just the rampantly emotional and repetivie crypto hate on HN that's absurd, it's also the sheer narrow follishness of so many of the arguments that's rather galling.
It's okay that it's unconvincing to you, but I think about dissidents and other "malicious" actors.
Apart from that, with a decentralised system it's way more complicated for others (!) to fuck up and lock your bank accounts.
But to be frank: I found the idea intriguing, never was invested at all. I am also not greedy and apart from taxes for my house I could sustain myself for a couple of months, maybe even 1-2 years without access to my bank accounts
this is already being done via mobile phones. Crypto doesn't solve the problem of being unbanked. In fact, the requirement that you need good internet speed for crypto to run locally means it's even harder for a place without infrastructure to participate.
In India, everyone has a phone even if they do not have a roof, bank account, proper 3 meals a day, etc. Bank accounts also require minimum balance, address and identity proof which is hard to get for some, local branch is necessary to open an account due to regulation and quality can vary wildly even for urban centres.
> In fact, the requirement that you need good internet speed for crypto to run locally means it's even harder for a place without infrastructure to participate.
Internet costs less than $2 for monthly unlimited data.
You can find 300-500 Mbps broadband in small towns of country where you won't find roads or basic hospitals.
This. So many people who dislike crypto also assume the world looks like the US - access to banking, trust in their government, trust in their central bank, access to international finance… If the entire world looked identical to the US then I can understand it’s not as useful. If the entire world ran on regional versions of M-Pesa…
You can actually interact with some crypto projects over SMS, and at the moment there are countries where the majority of txs are SMS mobile credit swaps. The issue is these don’t offer things like account histories, you can’t access financial products like loans (i.e micro loans) and remittance payments are hard to do from abroad in this way.
But actually smart phones and internet access is surprisingly high in sub Saharan africa where they primarily still use SMS trading.
And yes, crypto is starting to catch on out there as an alternative.
Crypto adoption is rising pretty fast in these places. I know you dislike that, but it’s a fact - the tech does work for those usecases. SMS is factually less useful than crypto, there are cash onramps available in the most obscure places, and it helps remittance payments that something similar to AliPay doesn’t. Almost any company that comes into this space has to follow KYC which is basically impossible for the cash societies without these necessary docs. If you look into this, such as the Gates Foundations research on payments and remittance in bankless societies, you’d see that crypto is a great solution. There’s a whole world out there in the crypto sphere outside of shitty NFTs and scams :)
> SMS is factually less useful than crypto, there are cash onramps available in the most obscure places
SMS is less useful than a lot of things. It doesn't mean that crypto is the solution, or that it won't get replaced by something more useful.
As for "cash on-ramps", it just shows that there's nothing inherently useful in crypto that can't be solved by other means. These are centralised points that people explicitly trust to handle their money. It's nothing new, and once societies stabilise they inevitably re-discover/re-implement all the rules and regulations you're so dismissive of (such as KYC rules).
> If you look into this, such as the Gates Foundations research on payments and remittance in bankless societies, you’d see that crypto
What’s truly decentralised? Miners are increasingly centralised and can effectively block/ignore transactions if they like. They may conceivably end up compelled to blacklist certain wallets, as some exchanges already do.
And that’s before we get to stuff like Luna, where the decentralised authorities took the centralised action of halting the chain entirely
I'm curious what makes this a centralized action? Many independent (decentralized?) entities debated and used social consensus to come to the decision to halt the chain to isolate further potential damage.
Like them or hate them, I'm intrigued where the centralized line in the sand was crossed
A relatively small group of powerful people shut the chain down. This was not a consensus action amongst token holders, network users or any other group, their consent was not required. Power is held by this group of (130?) people, it seems pretty centralised to me, basically an oligarchy.
Could the company not just issue a hundred trillion dollars of it in a day and sink the currency if they wanted to (or were forced into it).
There's no built-in way to verify that minted Tether can be verified to be backed. If there were, firstly there'd be no questions about the backing at all, it's all public on the blockchain, and second, it would revolutionary and actually useful to have a smart contract that can track real assets and not let them vanish from under it.
There's many channels/groups where the validators coordinate and communicate for all kinds of chain related activities, tasks, upgrades, etc.
Actually, the Putin analogy is basically exactly what happens. Putin pushed the "red button" and everything else is a direct consequence.
That's not how it works with validator based PoS chains. Absolutely Kwon can "suggest" to do something, but has no omnipotent influence or control unlike your Putin analogy.
Validators are absolutely free to discuss, debate, and agree to whatever they think is best. Additionally, the validators in the active set with this power are put there mostly by the community of token holders.
It's impossible to have a totally different system while the fiat system exists in parallel. Even if people used crypto just for payments and didn't assign a dollar value to it, it would still have a dollar value because if you know that 0.0001 BTC buys 1 kg of something then you can infer the dollar value
With so many startups how can you be sure all of them will fail to provide value?
It’s totally possible the whole thing is unworkable and dies out. Another option is that it survives in some niche area that provides value or just becomes entrenched like HFT.
And it’s possible a world changing blockchain startup hasn’t been invented yet. Any tech breakthroughs with processing power or storage could have a huge effect on blockchain.
different systems historically come about by extreme violence, genocides and migrations of peoples, a little icky shills and ponzis is a very low price
What are people holding all those stable coins for?
In contrast to other crypto currencies, nobody is holding it for speculation. I doubt anybody expects stable coins to be a better store of "dollar value" than the dollar itself.
Yet, someone holds those $150B worth of stable coins. Who and why?
As someone that holds a lot of stable coins (USDC, not USDT)
The same reason you would hold dollars in a bank account.
My local currency (GBP) is weak atm and falling against the dollar. I want to be able to use crypto services (easy transfers, buying/selling crypto, borrow/lend on DeFI), but I don't want any more exposure to the currently volatile crypto markets, so I hold a lot of USDC
Some of that USDC is being lent making ~2%, better than most banks. I can transfer it to someone else ~instantly and very cheap, instead of waiting 3-5 days for a bank transfer (I recently put some money in a crypto investment fund, transferred my investment in USDC)
> My local currency (GBP) is weak atm and falling against the dollar
That's an edge case that isn't a concern for Americans who are most enthusiastic about crypto and most involved in the crypto revolution. This is pointed out often and the crypto enthusiasts don't get it. Crypto for most of us is YAGNI
Maybe individuals are in a better position to judge whether or not they need something in their own lives. And if they use something, it's usually a pretty good indication that it is useful to them.
Easier to trade, no issues with tax&bank issues, and a lot of crypto exchanges charge to convert from crypto -> cash, whereas crypto -> crypto(stablecoin) is usually just exchange fees, less than the USD charge.
Sure about that bit? This may be the perception – that holding your assets in 'the crypto system' avoids tax issues – but the taxman will disagree.
Swapping $BTC for $USDC or whatever your tether of choice is is a 'taxable event'. You've sold one security in exchange for another. It doesn't matter that they're both crypto.
Now, it might be harder for the taxman to detect this event, which is a different thing.
But be careful! Actually read what your local tax office puts out. Assume nothing: it can be very easy to get yourself in to trouble.
For example:
- You buy BTC @ $1
- You exchange BTC @ $11 for $RANDOM
- You just made $10 :-) and you owe the taxman ~$3 (if you're in Australia)
- $RANDOM falls to ~$0
- So you didn't actually make a material profit
- But you still owe the taxman $3! (though you might be able to claim some sort of offset on your material loss of $RANDOM; IANAA)
- Now multiply all amounts by 10,000 and be sad
It's analogous to selling any asset. You buy gold, you sell gold at a profit and buy silver. You owe tax on the sale of the gold; you assume you'll pay this from the value you now hold in silver. The price of silver plummets. You still owe the tax on the sale of the gold.
>- But you still owe the taxman $3! (though you might be able to claim some sort of offset on your material loss of $RANDOM; IANAA)
From what I understand, you have to actually realize your losses/gains if you want to claim tax on them. So if $RANDOM drops to ~$0 then you can't use it for capital losses until you trade it to another crypto (or cash). You could probably just trade $RANDOM to something else and then back to realize the losses.
You handwave away $RANDOM falling to zero as something which doesn't count as a capital loss that you can carry forward to offset all future gains?
As another Australian you should really speak to an accountant if you ain't going to claim that massive loss because this is either comically wrong or intentionally misleading advice.
It's just like any other capital gains event and very simple to grok.
If this is true, it simply means your tax code has a giant loophole that allows people avoid paying tax on capital gains by simply swapping an asset for another.
Why?
You eventually have to pay it when you cash out (or buy service, goods with crypto).
If you wait you loose tax returns for the amount you invested in crypto (with each year you have it halved). Basically this is the same as in case of stock market.
You don't pay taxes until you sell stock. And here stock is whole crypto market.
I buy 100 USDC. I use these to buy some crypto-currency. 6 months later, I sell the crypto-currency for USDC, making a 10% profit. I sell the USDC for USD. Notice that I have made no profit from the sale of USDC, which is (supposedly) the only taxable event in this series of transactions. I bought 110 USDC worth $1 each, and sold 110 USDC worth $1 each. And I don't even have to sell the USDC for USD, I can buy stuff directly with USDC.
No no, you pay not the gain of transaction, you pay tax for the whole amount.
And then deduct the amount of fiat you used to buy crypto.
So, you buy 100 USDC for $100 - you report that in your tax information (for use in following years tax deduction).
Then some time ago, you sell 110 USDC for $120, you pay tax for the amount $120 - $100 (unless the $100 was used year earlier, then you can use just $50 as a cost).
If you didn't report any costs (meaning buying crypto) you pay tax for the whole $120 amount.
I poked around on Google and it looks like it is similar to France where crypto swap is also not taxable. (but I don't pay taxes there so it might be more complicated).
You still have to pay taxes when you convert back to fiat though. And eventually you have to do this because you don't want a significant portion of your wealth in stablecoins that might collapse overnight.
So it seems from the outside that stablecoins exist primarily to take advantage of grey areas in taxation legislation - and possibly also KYC/AML legislation - which allow investors in certain jurisdictions to avoid taxable events which would otherwise occur when trading.
Building a business model on dodging taxes isn't a great look, is it?
That makes no sense. You pay taxes on realized gains (i.e. when you cash out), not unrealized ones... otherwise people like Elon Musk would have to pay tens of billions of dollars in taxes and sell off part of their stock to even be able to pay the tax (and probably ruin the company in the process). The same applies to crypto, and even though it's mostly not needed (you pay tax on realized gains in most countries and it makes common sense crypto would be similar), some countries alredy explicitly codified this, just to be crystal clear: You pay your taxes when you convert back to cash. That's the "taxable event". Same as when you sell your stock.
You do pay taxes on realized gains, but they are realized when you sell the asset, not then you "cash out", and it makes perfect sense.
There are many true horror stories of amateur traders going from in the green to losing more than they own.
I don't know any place where what you describe is legal.
If this is your strategy (as in method to cheat with taxes) now is probably a good time to calculate how much you owe and put that aside into something less volatile, not to accidentally ruin your life.
so when you buy 1 btc for $30k, trade the btc for 100 of bscoin, bscoin rises to 50 bscoin pet 1 btc, you change back to btc, now you have 2 btc, but the next day big crash occurs and 1 btc is worth just 10k... you cash out and there you have it, a $10k loss... but, you're supposed to pay the tax man on the bscoin -> btc trade? That makes no sense. And then what, you'll want that tax back because of the loss? More BS paperwork for no reason? And all this for what?
That's correct, but under US tax law, in certain cases you are able to realize the loss on the BTC to offset the gains you made earlier (tax-loss harvesting)
This is also what happens when you buy and sell stocks or bonds, FWIW. Each sale is a taxable event, even if you receive payment in the form of a different stock or bond.
That's nice and all and I don't live in the US, but just imagining the way you would track all of this makes me shiver. Anyways, from my point of view (and also many countries point of view), the entire point of realized gain tax is to be the income tax for stock traders... i.e. income is what the government typically collects taxes on... when I convert BTC to DOGE (or whatever), there is no income, so there is nothing to tax. Otherwise you're getting into a dangerous territory of soft banning crypto trade by way of purposefully obtuse tax code. Ban on a good by abusing the bureaucracy instead of properly dealing with it through the voters and their representatives.
It's the same as stocks. Let's walk through an example.
You have 1 share of Stock A and I have 1 share of Stock B. We both paid 1 USD for each of our different stocks.
Now I want Stock A and you want Stock B, so we'll trade with each other, and lucky us, both stocks are now valued at 2 USD per share.
After performing this trade, ask yourself these questions (from my perspective, or swap A and B for yours, it's the same either way):
* Have I held Stock B?
* What did I pay for Stock B?
* Do I now hold Stock B?
* Why not?
* What did I sell it for?
* And how much was that valued?
* So then how much did I gain?
* How much is owed in tax?
Unless your local tax law specifies "cashing out" not only as a taxable event, but the only taxable event, which I assure you it does not for stocks, the correct answers are as below. The equivalent to what you seem to describe for crypto would be transferring money in and out of the exchange where you trade stocks, and it would be ludicrous if this was the taxable event, which it isn't - but this is a common misconception among amateur crypto traders.
* I did hold 1 Stock B.
* I paid 1 USD for it.
* I don't hold it anymore.
* My dog did not eat it, so I must have sold it, which I did.
* I sold it for 1 Stock A and it was valued at 2 USD at the time of the transaction.
* 1 USD of value was gained at the time I sold from the time I bought.
* I owe a percentage of the 1 USD of value gained, depending on the capital gains tax rate, which differs.
I'd ask the local tax office anonymously. Not knowing doesn't fly as an excuse, everyone says that and it doesn't matter if it's true. Where is this place, if you don't mind?
Bonus question, what if we trade 1 DOGE for 1 Stock C? Is that different? What about 1 DOGE for 1 USD? What about 1 DOGE for 1 token backed by 1 USD? What about 1 Stock C for 1 token backed by 1 USD? Somehow it seems to get more complicated with "cashing out" laws, not less. Also I don't believe they exist, but I'd like to know too if they do anywhere.
In the Netherlands you pay tax yearly, based on an estimated profit for your total holdings on January 1st. Taxing every stock trade seems insane, is it really how it works elsewhere?
> when I convert BTC to DOGE (or whatever), there is no income
That conversion is the sale of property. The IRS doesn't care whether you receive payment for your BTC in DOGE, USD, or corn futures; you divested funds from BTC, and the difference between what the BTC was worth at the time of acquisition VS sale is a capital gain or loss.
Trading. Quick arbitrage, day trading, pump and dumps, leverage. The same thing you can do by having dollars on your stock trading account you usually need coins on your crypto account and it would be crazy to have the volatile ones.
If only Tether and similar could show something, anything, an audit, that shows anything close to this.
I almost typed audit-like. But I remembered they've pulled that shit before. "Attestations of balances" mean fuck-all when even back when they were denying the links between Bitfinex and Tether, the same people were countersigning loans between the two for both parties.
Oh, they did claim that they had had an audit done. But they couldn't release it to the public "because it was in Mandarin".
I very very very much doubt that 11-12% cash is in anyone's hand.
> If only Tether and similar could show something, anything, an audit, that shows anything close to this.
Tether isn't the only stablecoin. USDC, GUSD, DAI, LUSD, etc all have either attestations / audit reports (that are actually legitimate) or are overcollateralized with assets that can be seen on chain.
Not that unreasonable. The total number of crypto traders globally is estimated at between 300M [1][2] (note: close to the population of the U.S.) $150B is an average of $500/user held as stablecoins, which doesn't seem that far off.
Traders and tax evaders. With stablecoins you can trade on decentralised smart contracts, and they even allow something called flash loans where you borrow the stablecoin, trade it for profit and then pay it back in one rollbackable transaction! Also there are many high yield investment schemes based on holding stablecoins.
a) exchanges for short-term liquidity
b) traders for whom going in and out of actual USD is a giant PITN
Or to put it differently: when you want to trade on e.g. Binance, it's a lot easier to trade in and out of Binance's stablecoin than in an out of actual USD.
I was mining BTC when it was 68K. Should have transferred it over to a stable-coin right there and then. Now I still hold the same amount in BTC but its worth a lot less.
It doesn't mean you are holding. If you want to transfer money using crypto (which is it's original purpose) and you don't want to be affected by crypto volatility, then stable coins are perfect.
Perfect for P2P on and off ramps too.
Also some countries such as Argentina have literally stolen the money of their citizens bank accounts in the past. So stable coins are more trustworthy than the banking system.
Its a much nicer experience for moving around large sums of money. I have heard of a fair few people who use it primarily for funding angellist investments since its more hassle free than a wire.
I don’t understand how this works, but according to [1] it’s used as collateral for loans. This seems to be a form of betting on price changes? See [2].
Provided you trust the stablecoin, it's a lot safer to keep e.g. USDC in a wallet you control rather than hold USD fiat balance on an exchange or some other shady crypto service.
It's safer cus there are hundreds of crypto exchanges that exist, in jurisdictions all over with varying levels of regulation or compliance. Many of which have run off with customer funds. You can always be sure that your funds are safer in your own wallet than on an exchange.
However, USDC is issued by a consortium spear headed by Coinbase which is a publicly traded US company that has a wealth of regulatory compliance hoops they jump through, and have routine independent auditors track the reserves of USDC.
But youre right in that there's elements of trust that you need to place.
Multiple parties need to fail for USDC to not be tradeable or redeemable to USD - holding in an exchange just requires one party to fail (exchange hacked, exit scam etc.)
If the issuer of USDC fails to redeem USDC with USD, the price of USDC in the market will collapse, so I'm not sure which "multiple parties" have to fail for USDC not to be redeemable.
Further, keeping funds in a non-custodial wallet entails a huge operational risk that you're glossing over entirely.
Going to Circle to redeem your USDC for FIAT USD is not the only way of receiving FIAT USD from USDC. You can also sell it for another asset, and sell that for FIAT. Or sell it for FIAT on an exchange.
The OP was about the safety of "holding" fiat on a single exchange vs USDC on your wallet.
Your point about non-custodial wallet risk is a misonemer as this is purely about can you trust yourself more than trust an exchange.
I don't think you understand how a currency peg works. If USDC loses the peg, arbitrageurs will buy USDC and redeem them, pocketing the difference. This will create a buying pressure that will re-establish the peg. Therefore maintaining the peg depends crucially on the issuer's ability to redeem USDC. If the issuer fails to redeem USDC, it's game over. The point that I made about the risks associated with using non-custodial wallets is also very valid.
I don't think you understand how USDC's redempetion works. It's not a website accessible by anyone open for redemptions 24/7. Read on that first before discussing this topic please.
Being an economist does not mean you automatically know how Circle (a payments company based in the US) issues the ERC-20 token that is called "USDC", or how the redemptions for that work.
This is like suggesting that a mechanic should read some car's owner's manual in order to learn how internal combustion engines work.
Look, don't try derail the conversation. Your claim is that in the event that the issuer of USDC would fail to redeem the tokens, you could still redeem them elsewhere. Explain how that would work.
Okay I think I see what you're saying better now - you're talking about the long term if such thing happens while I was purely thinking "in the moment".
Sorry for the tone, internet discussion can sometimes spin off quite fast just because its a pseudonymous environment. Have a great day!
They combine one strength of sovereign currencies (stable unit of account and store of value) with some strengths of cryptocurrencies, chiefly self-custody.
If someone is invested in e.g. Bitcoin and thinks they can sell the peak, turning it into $stablecoin is the easiest way, and the only compelling reason to then move that value into sovereign currencies is: you want to spend it, or there's reason to hedge on the stability of the peg. If you're planning to re-enter the market later, (actually stable) stablecoins are just as good, and are what a lot of these traders will have when they sell, so why do two additional transactions, even if they don't trigger taxable events, which they would.
There is even better rates available. The Anchor protocol pays 20% APR! And the principal is protected as described in the white paper,
> Anchor offers a principal-protected stablecoin savings product that pays depositors a stable interest rate. It achieves this by stabilizing the deposit interest rate with block rewards accruing to assets that are used to borrow stablecoins.
Clickbait title it seems; USDT and DAI lost some market share while BUSD and USDC have grown more.
> USDC has grown 20% with $10.6 billion more tokens in circulation. BUSD boosted up 22% — representing growth of $4.2 billion. USDT has shed about $4.1 billion, a 5% reduction, while DAI dwindled by 30% — from $8.9 billion to $6.2 billion.
If I am not mistaken, USDC (coinbase) is properly and regularly audited for proof-of-reserves?
Not so sure about Binance though.
But at any rate, if capital starts to migrate to audited stablecoins from POS (and by that, I don't mean proof of stake) like Tether, sounds to me like a good thing.
I’m sure I’ve seen an audit before but because Coinbase is a public company all finances have to be released so you should be able to see it there too?
IIRC USDC is run by Circle, a separate legal entity. While CB and Circle might be controlled by the same people, they are not subject to the same legal disclosure requirements.
It seems we have a serious problem with the first generation of cryptocurrencies being mainly a vehicle for scams and otherwise extracting value from gullible people.
From what I've seen so far in most cases "stable-" isn't really stable and currency definitely doesn't work like one.
Or am I just biased by sourcing my information from HN and only seeing the cases where crypto crashes and burns instead of all the successful ones no one here is talking about. Are there any?
USDC and DAI are both collateralized and doing fine at the moment and can operate as a decentralized currency and payment rail.
It is never 100% risk free, though. The best way to maintain peg to dollar is just to hold the dollar. Many stablecoin holders are taking on this higher risk as they seek yield in protocols like Aave and dYdX, or to have ready liquidity to deploy this in the crypto investment market.
I really wonder if USDT bashing will get old or will people finally get that USDT will not just disappear overnight. They've redeemed 11% of their total capitalization and nothing happened.
I despise shady accounting practices and I'm sure Tether is on par with a good american financial institution, but I highly doubt it they will ever default.
I know it's a long shot, but hear me out:
1. Their redemption process can be handled in a way to prevent an uncontrolled bank run. You can redeem 100.000 minimum, hence it's a not a retail bank run for sure.
2. They print the dollars for much of the old school crypto ecosystem, with all players acknowledging their importance. So unless the key players in the field want to take USDT down, it's not going down. Even the NYAG tried and gave them a penny fine instead.
And even the article here really lacks context. The USDT reedeming right now is tied to all the negative publicity in the media. I've traded through this current depeg (a week ago), that was purely speculative and generated by the panic. A twitter thread stared to report a depeg, and more and more people piled on the exchanges to swap USDT for BUSD and USDC. In the end a lot of USDT was redeemed, nothing happened, expect that some people made a lot of money on the panic itself (and the premium).
I've been hearing the same story for the past 6 years. USDT will fail, they don't have any backing, US will shut them down,.... And the world keeps on turning. Sorry to break it to you. Nothing is going to happen until key crypto players have a legit alternative that will keep the ecosystem alive.
As long as there is a BTC/USDT and a BTC/USD market, Tether will work. If someone wants to sell USDT for USD, All Tether has to do is buy BTC with USDT, then sell the BTC for USD.
The collateral for DAI are hihgly crypto correlated - 43.8% USDC, 32.1% ETH, 11.3% WBTC, 5.9% USDP, and others. ETH and WBTC are just Ethereum and BTC, both of which have dropped considerably recently. USDP somehow dropped to ~$0 since April. USDC is sworn to be 100% USD backed so let's take that at face value.
DAI is said to have 150% over-collateralization. ETH & WBTC have dropped more than half. Let's say just off by 50%. USDP and others seem got wiped out. $150 x (43.8% + 32.1%/2 + 11.3%/2 + 0%) = ~$98. That means $150 of collateral is worth only ~$98 now, not enough to back $100 of DAI for 1-to-$1 redemption.
Nope, you are completely wrong. Wrong USDP, no discussion of how vault liquidation prevents this from happening, Dai is overcollateralized right now at 159% not 98%, USDC is not necessarily crypto correlated, Dai doesn't have $1-to-$1 redemption as it is not a centralized stablecoin, etc. etc.
It is potentially the slow start of a run as interest rates rise and lower risk assets offer improved yields versus crypto offerings. Besides Luna, Tether recently required recapitalization, so there is evidence of stress.
No one knows (or would admit publicly if they did, lots of money to be made if you do) what’ll be the linchpin causing a full blown run and a rapid decapitalization of remaining stablecoins. If and when it occurs, it will happen slowly, and then all of a sudden as counterparties race to the exits. Last folks out hold the bags.
Tether's cap is not the same as Tether's available liquidity to redeem the token. We don't know what's the limit of withdrawals they can handle in reality.
Used to be that you couldn't redeem unless you were a whale. Unless you weren't a US national. Unless you'd given 90-120 days notice. Unless there was a fee paid.
People literally put up bounties hunting any successful redemption of Tether. Especially since, and this is as true now, as it was then:
"Tether makes no guarantees, promises or arrangement that the Tether stablecoin is or will be redeemable in any way, shape or form."
There's very good reason to do a lot of KYC and set limits on people who want to get USD for their USDT. The last person who tried to operate such a business was locked up in a US prison for nearly a decade. Good motivation to not deal with retail customers and the slow burn US justice system don't you think?
What you want to happen to void this criticism would get the Tether execs put in prison. Though I guess that's what some people here secretly want anyway.
> What you want to happen to void this criticism would get the Tether execs put in prison. Though I guess that's what some people here secretly want anyway.
I mean, it's not like they have, multiple times, lied to people about their financial backing, actively messed around with KYC and AML laws, and have had multiple judgments open against them, or their affiliations with other entities like Bitfinex, when they really were one and the same.
> We don't know what's the limit of withdrawals they can handle in reality.
Yes that's a fair point (and it's likely some of the other stablecoins share that problem), but still, isn't $7B a rather tiny portion of the overall stablecoin market cap?
Nah, the raison d'être of the project (like anything cryptocurrency related) is earning the creators tons of money. Scamming a whole bunch of cryptocurrency users by selling them tokens, and then absconding with the assets they’re supposedly backed by would be a highly effective way to do that
I'm just a lurker on crypto issues, but if you're avoiding transaction fees by trading on a company's private chain, aren't your assets also held by that private company?
So if you wanted to redeem your assets from a private chain, wouldn't those trades need to interact with the company's holdings, rather than the wider marketplace?
I do it; on Aave you can deposit USDC and borrow USDT against it, earning an interest on USDC and paying interest on the USDT. It currently costs me about 3 APR to short Tether. What's nice is that you can iterate the strategy, e.g. deposit 1000 USDC, borrow 950 USDT, swap this USDT for USDC, deposit the USDC, borrow more USDT...
https://app.aave.com/ offers "E-mode", which lets you borrow stablecoins worth up to 99 % of the stablecoins you deposited.
levered shorts do have a liquidation downside, while any short has an implicit opportunity cost downside over time.
the fact that defi shorting is available is a great improvement. now there's only smart contract risk, which for aave is negligible compared to exchange risk.
See my sibling comment. You can do a permissionless short on Tether on the blockchain for a varying interest rate difference between USDC and USDT. I've been paying approx 2 % a year for the last year now.
If you think Dai will collapse but not eth, you could "short" it by minting Dai with an eth vault, selling it immediately for USD, then buying back the Dai when it collapses and using it to unlock your eth vault.
My guess is you would want to short it without exposure to eth and then idk.. You could do the same with USDC.
It's probably a little tough to find an instrument that gives you exactly the short exposure you want. You could sell BTCUSDT perpetuals and buy BTCBUSD perpetuals to hedge your BTC exposure. But holding that position isn't free. You could bleed fees for years until you finally get proven right.
I read about this last week [1] and am still quite perplexed about Tether and its a backing. If you look at the redemption pattern you can see large movements. I.e. a whale must be withdrawing funds. This really reminds me of 2008.
Exchanges like Binance, FTX and Bitfinex are all Tether supporters, and will not let if fail - or they go down too. Since they themselves hold a larger portion of it, they can in a sense, control if it fails or not.
There is no evidence that the tether was redeemed for anything.
We know from the CFTC settlement, and statements from Celsius CEO Alex Mashinsky, that Tether Inc has a history of issuing tethers and then accounting the loan itself as the backing for the issuance - literally just printing pseudo-money out of thin air.
I would first presume the tether "redemptions" were just cancellations of these loans. No dollars or other consideration left Tether Inc.
I don't get all the bandwagon hate of crypto on this site.. Sure 99% of crypto schemes are b.s and ponzi. But I like to think in terms of use cases. Currently there is no way to send "money" to someone in another country on the other side of the world, in a decentralized way, and without transaction fees.
Can this problem be solved without crypto? Probably, but currently crypto is looking like the best way to be able to do this.
I was able to send funds from US directly to a bank account of my friend in Ukraine near instantly for low single digit percent and I could do the same using western union(to my surprise).
All without a fear that my currency will drop 10-20% in a day.
Now about decentralization, I believe that most people hold their transactional crypto funds in a handful of exchanges and thus the dream of decentralized crypto transactions is rarely realized.
But most importantly why does the end user care if the transaction was decentralized or went through a series of transactions through one or more centralized intermediaries.
All people care is have funds that left place A showed up in place B
I mean there is no way you can get them USD as cash in hand if that's what you mean. Do you mean USD as in a multi-currency bank account like revolut?
Onramp via onjuno, convert to USDC, send to your polygon wallet, convert to jEUR on Jarvis, send jEUR to friends wallet, they offramp jEUR with 0 fees to their IBAN bank account in ukraine via mt.Pelerin.
You only pay the polygon token transfer fees here.
Note that Microsoft, Apple, Google, and Amazon all have $1T+ market caps, and before the recent market meltdown had multi-trillion valuations.
Most Americans - particularly those who grew up before globalization - underestimate the scale of global markets. The U.S. is about 4% of the world's population and about 15% of global GDP. Anything that's Internet-based and has truly global appeal will be significantly larger than anything we would've been familiar with pre-globalization. Hell, the product I work on has about 3B users, 10x the population of the United States.
So we should ignore that crypto is being used a fraction of the time as much as financial products that are worth several times less, because global markets are large? Should every product have a 1 trillion plus valuation because global markets are large?
I just never actually see evidence that crypto has taken over global finance or is well on its way to doing so.
The point is that it's not being used a fraction of the time, because you take small fraction of total humans on earth (7B+) and it's a larger number than a large fraction of total humans in the US (320M). There are 100M crypto users in India, for example - that's only about 7%, but 7% of 1.5B is a larger number than 11.8% (market share of JP Morgan Chase, the largest U.S. bank) of 320M. Worldwide, crypto users are about 3% of the total population of most countries - but the U.S. as a whole is only 4% of the global population, so 3% of a global market is the same size as 75% of the U.S. market.
I have a wallet and bought crypto once. Am I a user? By your statistics, yes. Do I even matter? No.
The only thing I used this crypto for is to sell it later (and gain something like 15 euro profit). Am I a user? By your statistics, still yes. Do I even matter? Still no.
Additionally this use case (trade crypto hoping for gains in actual fiat money) is the absolute vast majority of what crypto is used for. Is this replacing traditional finance? Ahahahaha, no. AliPay has a bigger impact on "traditional finance" than all of crypto now or ever.
Outside of your rhetoric, I do think this is a fair point - with bank transfer ultimately you are constrained by the political people in who you can transfer to.
2-4% seems like a bad deal compared to sending usdc, which should be around closer to 0.1-1% after the ukraine exchange takes their usdc to local currency exchange fee. minimal volatility, less fees.
the majority of crypto is being held in non custodial wallets, not exchanges.
a better way to frame your comment: why does the world use Stripe and PayPal when you can just go to your bank and ask them to setup a multi day long wire process from bank A to B for less fees?
The 'wire process' is not "multi-day-long", plus a huge number of banks now participate in Zelle, which can be used for instantaneous fund transfers with zero fees. The biggest problem with Zelle is that it looks and feels like a circa-2002 web application.
many wires will be multi days long, encumbered by weekends, holidays, business hours, international checks, and occasional bounces (ask any company their experience with wires for international contractors).
Zelle is between US banks only. some people live outside of the US, surprisingly.
The EU has now mandated fast transfers between banks in the EU.
So, for EU (23 countries) it's not a problem either.
Sending money between banks is both a technical and a regulatory issue (and crypto is discovering why regulations exist at great cost to crypto users). However, "instant money transfer between banks" is not an unsolved issue.
large (> 10K) bank and wire transfers within UK and EU are still in the order of days, not seconds. the last large bank transfer I did took 5 days without any way for me to track this transfer. the same amount I was able to transfer within crypto networks in 30 seconds and the transaction progress and it’s validation status was visible for the entire duration.
the EU and UK banking system is far better than the US but still it is not a global payment processor network and API, hence why the web even in EU and UK relies on Stripe, visa, Apple Pay and PayPal and their corporate and centralized infrastructures. building an alternative infra that is not based on a single corporate entity is net positive for the world long term
No idea which bank you used where a payment took 5 days (are you American?). I made a high five figure payment online when buying a property and it was in the destination account the next day.
Crypto bros really have to drop the idea that it's going mainstream by allowing people to transfer money. Crypto is NOT easier or safer for anyone than a faster payment in the EU/UK. Unless you are doing something illegal.
that’s probably CHAPS as well then as FP is within 2 hours. still a a lot slower than crypto’s 30-60 seconds, and extremely opaque process that could have taken additional days without any information to the customer.
but undoubtedly, both CHAPS and FP are very fast and inexpensive, and some of the best systems in the world for interbank transfers. unfortunately it only works from one UK bank to another UK bank, which makes up a small portion of global population. even within UK you will often have need to pay somebody who doesn’t have a UK bank.
that limit depends on your bank. for large transfers you will often need to visit your branch in person which can be a multi day process.
and yes UK faster payments system is great but it is not yet the backbone of global payment processing. the world is larger than the UK and as we continue to connect globally online and become more digitally nomadic there will be more need to pay users outside of a UK-to-UK bank system.
If you're the kind of person that regularly wires six digit sums in and out of your personal account, I suspect that one, if not both of the following are true: 1) that you've chosen your banking institution with a view to being expedient in such transfers, and 2) are on a known basis with sufficiently senior branch/bank personnel as to help establish parameters with them on legitimacy of such transfers.
yep. the rich tend to be given access to better banking services than the poor: higher limits, direct line of contact with a bank manager, additional services. when your account reaches a certain wealth threshold the bank will step in to ensure you have a better experience than the poor.
banking is a radically different design philosophy than a protocol where all addresses and transactions are treated equally regardless of wealth, class, and other social factors like race and family connections.
It is self-fulfilling in regards to your point though.
"Oh, that's not a useful system, because there are limits."
"Well, when you get near those limits the bank starts to work with you so those are still not roadblocks."
"Oh, well that's just because they prefer the rich to the poor."
No, you miss the point. At lower amounts, it's a non-issue because you're not hitting limits. At the point where you are hitting limits, it's facilitated to smooth those things. End result is that there should be few issues, regardless of amounts.
the system can and does favour those by social class, connections, race, gender. discrimination in financial and lending services is a well documented issue. the fact that the banking system “imposes limits and barriers until you reach a certain social class” is not a point in favour of the banking system.
most private clients are getting cushy services such as better lending and interest rates, faster payment times, better wealth management services.
but I digress. the banks are useful obviously, despite their flaws, and in the EU and UK the banks tend to be some of the best in the world. this is not to say banks as a whole are useless, but banking systems on average across the globe have many aspects that fall short of our ideals. crypto does not fill all of those, and has plenty of flaws and issues as well, but it does excel in certain areas and at the very least provide a competition that forces us to more closely consider the pitfalls of our typical financial structures.
it always comes back to the same argument: crypto is bad because a couple centralized companies handle this all for us just fine, and people in some countries already have great interbank transfers.
also please lose the ad hominem, it is not needed.
> it always comes back to the same argument: crypto is bad because
No it always comes to the same argument: crypto bros argue that traditional finance is bad and their claims get refuted again, and again, and again, until they fall back to the same old tired "but what of the unbanked?!"
No. Crypto will not save the unbanked.
> also please lose the ad hominem, it is not needed.
the point is that Stripe achieves some features for certain users that a wire does not. and crypto achieves some features for certain users that Stripe does not.
I’ve been hearing that use case for crypto for a decade now. I don’t see people using crypto that way, they overwhelmingly use existing services which are cheaper and work fine the overwhelming majority of the time. People ignore this and speculate trillions into crypto.
My issue is that people don’t even need to see crypto actually succeeding at the use cases people talk about to be considered a good investment. People will invest in crypto regardless. I believe crypto does have value but the valuation in no way matches the actual present day value of the crypto or even a plausible projection of its future value. People just say “crypto to 100 trillion! Smart contracts!” and nobody has to see any real results that justify those numbers.
Why should I be impressed that something has potential? Many things have potential.
> Currently there is no way to send "money" to someone in another country on the other side of the world, in a decentralized way, and without transaction fees.
Why is this necessary? I have banks in three countries and generally pay nothing to move money between them or to pay others. This really doesn't feel like a problem that needs to be solved except by those trying to avoid taxation.
Venmo is USA only. Paypal takes egregious transactio fees. Everything you listed has transaction fees except for biscuits, cash, check and beer. Which will take much longer than 60 seconds to arrive
Ach and bank wires cost me nothing, iBAN costs me nothing, payconiq p2p costs me nothing, all are roughly instantaneous, except ach which is still same day.
it is like asking “Why Does PayPal Exist When We Have iBAN?” obviously some subset of the globe finds it more useful than iBAN transfers for their needs (like setting up an online shop).
So you have friends that you transfer crypto to if they need to purchase something at a shop and don’t have the funds?
God that whole process sounds painful.
In the Uk we would just transfer the money across with a bank transfer as all banks support instant transfers which have no fees (including between banks).
the point is not to be a system that beats a single service for sending GBP from A to B in the UK. the point is a system that has a variety of uses and applications accessible by anybody, regardless of which country the user resides in.
even in countries with good banking like UK, many e-commerce companies will still choose Stripe VISA and PayPal to reach customers outside the UK and integrate a payment processor API. an online shop could offer crypto as a payment mechanism if they wanted to avoid using these companies and if it met their needs.
You complain about the lack of timeliness with wire and interbank transfers in the regular system, and talk about the 'underdeveloped' economies that don't afford people many luxuries...
... so suggest that they use crypto, which for many, comes with an onerous fee too, to be timely. Your "buy from the shop" example better not be urgent, otherwise you're paying gas for someone to verify it, or it sits in the queue.
ETH fees at time of writing are about $1-3 for a transaction finality of < 60 sec. note that is fixed, the same if you transfer 1 or 100 or 1000 tokens.
though eventually as these networks scale most users will be transacting and interacting with L2 rather than L1. fees in L2 are in cents on the dollar, transaction finality is often very quick, and security assumptions are typically good enough for most use cases.
This doesn’t explain why paying with Crypto is better though in this use case.
The UK example just shows that a decentralised blockchain approach isn’t required to meet the use case you are describing - in fact it’s worse for the described use case in almost every metric.
Having a different, worse alternative isn’t exactly something to shout about.
use case depends on consumer. paying for an abortion in a southern US state or paying a Russian or Iranian contractor for web design services might be a suitable example of crypto. paying for an in-game asset to avoid 30% App Store fees may be another use case in the future. or purchasing digital assets like art, domains. and smart contract functionality like escrow, auctions, loans and lending, global crowdfunds is another use case.
whether it is better or worse for each of those depends who you ask and what their goals are, and also in what year you ask. ten years ago it was inconceivable to do these things with crypto, ten years from now it may be that these systems will continue to improve in terms of fees, privacy, scalability and user experience. consider the current cohort of users to be beta testers who are taking on additional risk and technical burden while the system continues to improve.
Well paying for an abortion isn't really an issue at the moment unless i'm missing something (you can just use cash? The issue here is insurance cover, but that doesn't change). Also I have tried to search for 'pay for an abortion with cryptocurrency' but can't find anything relevant on this happening in reality (other than people suggest it could possibly happen?).
How would paying in crypto avoid app store fees? Presumably you mean the Apple / Google App Stores, when Apple or Google will still want to take their 30%? How do you bypass that?
> purchasing digital assets like art
Who is using Crypto to purchase art? (Note: NFTs are not purchasing Art, you own some metadata that refers to a piece of art publicly hosted somewhere else). I can certinaly use my fiat currency to purchase both the rights to artworks, to purchase actual physical art pieces without having to jump through payment hoops, and even to purchase on-demand streaming of performance art. I cant really do any of that with Crypto without turning it back into regular fiat currency first (without searching out the tiny amount of places that accept crypto directly, but even then - whats the advantage to just paying in fiat?).
I mean I'm entirely unconvinced there is a compelling real use-case in anything listed here.
> ten years ago it was inconceivable to do these things with crypto, ten years from now it may be that these systems will continue to improve in terms of fees, privacy, scalability and user experience.
IMO if a technology is actually transformative, it will find a valid use case quicker than this. The only real use-cases I have seen seem to have been creating ponzi-schemes, effectively laundering money and speculative gambling on the price.
it’s easy to dismiss nft and the like if you are dead-set on your opinion that it’s all ponzi, but it is making traction in art and media: see Christie’s and Sotheby’s and a variety of notable artists and galleries not to mention Meta, Spotify and other platforms.
> you can just use cash?
this question sorta gets at one of the primary values of crypto, that it’s peer to peer, transferred non custodially and pseudonymous. many countries are moving away from cash into digital only forms of transactions, and having a system that upholds peer to peer transactions can be useful.
replace abortion in that example with other legally questionable actions depending on your state. maybe buying marijuana or psilocybin for medical purposes, paying somebody like Edward Snowden for giving a lecture, or purchasing a VPN subscription. for citizens who are rebelling against their state in some way, such as abortion rights protests, or climate activism like extinction rebellion, or a person that lives in a less democratic regime, it may be desirable to use certain crypto systems to mitigate state oversight.
I'm not anti crypto, I simply argue that the problems alleged by OP don't really exist except in the mind of people who once had a bank twenty years ago. By and large, if I want something that holds its value pegged to the US dollar, I hold a US dollar. Moving a US dollar costs me nothing anywhere in the world. Moving a USDT or whatever means I now have to set up an exclusive banking relationship with someone I trust even _less_ than my bank. Maybe it solves a problem for some subset of the globe, but I'm not convinced their problems are the noble ones stated above.
sure, if you just want USD then hold that. if you want an asset that tracks USD, but has the freedom to exchange in crypto markets, be held in a non custodial way, and operate with smart contracts, a USD pegged stablecoin makes sense.
Because we can send emails from Australia to Macedonia for free.
I think the point they're trying to make is the current (lack of?) Global financial system is a joke.
Crypto is enabling something that has the value and utility of "money" with interconnectedness and simplicity of the Internet. How does that not click in ppls minds?
For the 7Billion ppl on earth, easy low fee international money transfers are a joke. And in this context low fee is 1-3%.
I can send $1B USDC for 60 cents using crypto.
And before anyone says "but you need to have crypto and a wallet and an exchange and a ..."
The same is true about email. You need to have a computer, and internet, and a email provider/server.
We take for granted the things that are already engraved in our lives, but it wasn't that long ago when someone could make the same argument about snail mail/fax vs email.
It doesn't click in peoples minds because it is not simple. It is patently more complex than Visa or Mastercard. If there really was the "simplicity of the Internet" then a system better than Visa or Mastercard or logging on to your bank and sending money would have appeared in the last 12 years.
Secondly, no government is giving up control of their economy to Crypto miners and the "global financial system". It will not happen, it will be regulated until it is controlled (a state owned coin effectively). I certainly don't want anonymous miners or the whims of Crypto casino controlling the economy in the country i live.
At least with the current system I can vote for a government that has control of it's economic policy, even if that vote has minimal effect. Some control is better than none.
I'm guessing the scorn is a reaction to the religious fervor that permeates the crypto space and that bleeds into the "mainstream" like the front page of HN and parts of Twitter. Based off the explosion of "told ya so" articles that have followed the Terra/UST scandal and sentiment among friends, anyway.
> I don't get all the bandwagon hate of crypto on this site.
> Sure 99% of crypto schemes are b.s and ponzi.
That second sentence explains the first, really.
Anyway, so the remittance industry is estimated to be USD 15.27 Billion as of 2021 so if you could tap into that market, you'd do pretty well. Or rather, you would, if you charged some sort of fee to use your services, so you need to charge some sort of a fee, which negates that advantage of using crypto. Coinbase makes it easy to get into crypto, but they do charge a fee for that.
It’s a very niche use case. For most use cases, you can send money perfectly fine using a credit card or Apple Pay etc. To receive money you can open a Shopify store or whatever comes next. To send money to relatives in countries with little infrastructure, there’s already Hawala, Western Union, etc. Not perfect but will be incrementally improved.
I don't need to send money to the other side of the world in a decentralized way. There's a good chance I never will and similarly 99% of people do not and never will have this problem.
I hate crypto as much as the average HNer, but "I don't need it so therefore nobody does" is a stupid and short-sighted reply.
There are at least a dozen countries that I can think of that have massive restrictions on how many flows in and out of the country, preventing people from being able to keep their money safe from raging dictators or changing rulers.
It's not nobody, but I think it's a lot less than 1% of people that are going to need to send a meaningful amount of money to places like that.
Obviously providing some service to even .01% of people or whatever is valuable. But at this point Bitcoin is valued like Google which is used by tens of percents of all people.
Ethereum based stablecoins are hardly the best way to do this. From a user standpoint you have to 1) buy your stablecoin on some exchange 2) transfer it to your own wallet 3) pay a hefty fee to transfer it to the recipient (>$20 when the network is busy) 4) Recipient pays another hefty fee to transfer it to an exchange so they can offramp.
If I'm sending a remittance or similar paying $$$$ in fees is absolutely not desirable. And with current gas prices the cost of sending anything less than 50k is pretty comparable with just doing a wire transfer.
the fees on exchanges are very small compared to paypal and similar products. Coinbase Pro fees are less than 0.6% and go down to nearly 0%.
for payments over 10K the fees may be less than Wise or a wire, and faster.
for average users the end game is L2 and direct on- and off- ramps from CEX and services like Ramp, and more payment processors accepting crypto so off-ramps will not be always needed. fees in L2 are in cents.
This is how you get a 2008-type crash - loans which seem to be unrelated but are tied to a common market.
About 11% of Tether has been cashed out in the last month.
The real problem for Tether is simple. Why would anyone buy Tether at this point? There's zero upside potential, after all. And the competition, USDC and GUSD, looks better backed. So a steady outflow is to be expected. We're going to find out how strong their backing is.
Watch out for heavily promoted Tether-based "staking" schemes designed to prevent cash-out.