How does this make sense? If they don't hold the underlying security, where does the value come from?

Come on, this is cryptocurrency. The whole point is to con people into thinking a fake thing is real because blockchain and cash in; with the off chance that if enough people believe, then their belief will make the fake thing real.

You should read up on the last decade in Venezuela, which used to be the richest country in Latin America, and having wealthy professionals see their savings evaporate due to 1,000,000% inflation because of the actions of a government they democratically elected.

Belief is the only thing holding together a lot of the things that we rely on to keep society functioning the way it does.

I'm guessing (though not assuming) you're posting from one of the most historically stable countries in human history, but that isn't how most people experience planet earth, and it isn't guaranteed that that's the wya you'll always experience it either.

It's not like if hyperinflation could be avoided everything else should be fine. No, hyperinflation is a sign that the economy is grossly mismanaged, and that in turn is likely the result of desperate, incompetent government facing all sorts of economic, social and political problems. Switching to a different currency isn't going to fix a failed state, sorry.

It's an individual citizen's hedge against a poorly managed government in a country they have little choice but to be in (immigration isn't so easy if you're not born into an already prosperous, stable country to begin with).

My friend from Venezuela certainly would've benefited from owning a currency that wasn't regulated by his government, which made exchanging Bolivars for external currency illegal except for those with government connections.

Are you saying one should only be concerned about the state itself, that citizens ought to go down with the ship and be victims of the government they were born into?

I'm hoping you're simply ignorant of the very real personal problems of people born into corrupt and unfortunate countries have that are mitigated or solved by crypto currencies (even if it doesn't solve the problems of the state) rather than simply uncaring for their plight and unwilling to care about solitons for them that don't involve also fixing the entire corrupt nation they were born into.

Cryptocurrencies are not used as currency anywhere in the world, because they have properties that make them highly undesirable as money. People who live in countries facing monetary problems will use a foreign currency if they can, but the thing is, using a foreign currency and avoiding some of the problems of hyperinflation is just a marginal improvement, it doesn't solve 99% of the problems that these people are having.

My knowledge of the usage and value and improvement on quality of life for people using cryotocurrency in nations experiencing massive hyperinflation come from one of my closest friends from Venezuela, who I talk to every week for hours (I'm sitting next to him right now as I type this).

Where does yours come from? Because what you're saying directly contradicts his reported experiences for both him and relatives and friends of his. I'm sure you have an equally credible source on the ground of at least a comparable market that informs your view on what does and doesn't affect the lives of people in those countries?

To your point, many Venezuelans do store their wealth in Crypto, and only convert the amount they need to spend that day to Bolivars. That is the use case.

Where does my knowledge come from? It comes from studying. I studied economic theory, economic history, the history of the international monetary system, and the economies of many of these countries. I read the reports from reputable organisations such as the IMF and the UN, and the regular news sources. So I'm well-informed and therefore I don't need to invent made-up Venezuelan friends like every Bitcoin propagandist does. I know, for example, that hyperinflation is one of the least pressing problems for Venezuelans. Most of them don't have savings that can be eroded by rapidly increasing prices, and the ones that do aren't stupid enough to invest their savings in an unsafe asset that can lose >50% of its value in one evening. Cryptocurrencies improve the lives of absolutely no one, so stop pretending that they do.

And if I were to go through the effort of providing proof of my Venezuelan best friend and his accounts of life in Venezuela, since my hacker news profile is the same name as my real identity profiles, I'm sure you'd capitulate and appologize for assuming anyone who disagrees with you is arguing in bad faith?

For posterity, I have a github profile of this same name, and my venezuelan friend and I are doing a hackathon project to allow Venezuelans to use crypto in the exact way I've described. In one month that project and a youtube video will be uploaded for it.

The person above who assumes that people argue in bad faith and that first hand reports are meaningless is not someone you should emulate or consider reliable. He's lost to his ego and dogma, please safely ignore him.

Privileged people have no idea what struggles others face and don't have much to lose by being wrong about their bad assumptions anyway. Let the way he thinks serve as a cautionary tale.

I doubt the person above (lottin) would be willing to share his identity, and have the foul temper and bad faith arguments of his associated with his real persona. This should tell you all you need to know if true.

Anyway, I won't be responding to the above poster anymore, you know what Twain said about arguing with fools.

Assuming that your story about your Venezuelan friend is made-up is just normal. Even if you did have a Venezuelan friend, how is that a source of authority on anything? It's just anecdotal evidence and irrelevant to the discussion. Like someone here, the other day, who claimed to be a business owner who made international payments with bitcoin on a regular basis... absolutely unbelievable.

If you're really arguing in good faith you should start by disclosing your conflicts of interest. You didn't mention you were involved in a bitcoin project. You probably own bitcoin as well. For the record, I don't have conflicts of interest. I don't have any financial stake in bitcoin or in other crypto-currencies.

To summarise, and going back to the topic of the conversation... your entire claim is that a number of Venezuelans (don't know how many) invest their savings in bitcoin and this improves their quality of life because they're able to combat the effects of hyperinflation in this way.

Okay, so what? Does that contradict my original point? No, it doesn't. My point is that, considering the situation as a whole, having the opportunity to avoid the effects of hyperinflation by using a foreign currency, for example, is only a marginal improvement for these people. Even assuming that bitcoin can fulfil the role of an actual solid currency, which in my opinion it can't.

> Belief is the only thing holding together a lot of the things that we rely on to keep society functioning the way it does.

Which is why alot of people feel threatened by the ever shifting sands in the global financial landscape

Indeed, never seen so many people on HN be so reactionary and emotional about a simple technology.

The demographics of the crowd:

wealthy, living in the most stable country in history, with access to digital forms of banking worldwide, ability to emigrate wherever they'd like, able to transfer money as they see fit, and holding their savings in the global reserve currency for a country which they're a citizen of.

Doesn't help many empathise with why many people around the world can't trust their governments centrap bank, or open a bank account elsewhere, or convert their savings to a stable currency and assume it won't be seized or banned locally.

It's best to just build cryotocurrency and not bother explaining to Americans who aren't willing to listen why it's necessary.

It's like explaining public transportation to people at a country club.

> It's best to just build cryotocurrency and not bother explaining to Americans who aren't willing to listen why it's necessary.

> It's like explaining public transportation to people at a country club.

That's a good way to put it, and that's me saying that as some one who left the US 6 years ago, worked in finance as a dev (consumer and derivatives markets, emerging/developing and developed) and actively helping to build defi protocols and blockchain research/development.

> You should read up on the last decade in Venezuela, which used to be the richest country in Latin America,

I'm well aware of the last decade in Venezuela. Hasn't cryptocurrency been so helpful there?

> and having wealthy professionals see their savings evaporate due to 1,000,000% inflation because of the actions of a government they democratically elected.

It's kinda weird that you focus on the fortunes of "wealthy professionals" in that disaster.

Alternative currencies to the Bolivar have been the only way for Venezuelan citizens to protect themselves from losing their entire life savings because of the actions of their governments cental bank.

Digital forms of currency which aren't regulated by the state control of the banking system are the only safe way to get an alternative currency, since the Venezuelan government made exchanging Bolivars for stabler currencies like the USD illegal.

Im talking about solving the problems of individual Venezuelans, not the government or state. And if people with savings can't rely on them, then a country has no hope of attracting or retaining high talent professionals. Hence why it's so hard to find people left in Venezuela with highly sought after talents anymore.

The people of Venezuela elected the US government? That's news to me!

It's a synthetic stock which is overcollateralized by stablecoins. So for example, if $100 dollars worth of the stock is issued, someone else had to lock up $150 dollars worth of USD to issue it. And when the price rises (and hence collateralization ratio drops), the issuer has to constantly top up collateral or run the risk of them being liquidated.

How do they get price to track the real stock? By simple incentives. If the synthetic stock is trading lower than the real price, people have incentive to buy it. If it is trading above, people can easily mint new stock and sell it.

There are lots of benefits to this: 1. It allows people who typically might not have access to the US market to get price exposure to US companies

2. It allows 24/7 trading

3. US stocks are just the start, before more innovative synthetic products can be built on top.

> If the synthetic stock is trading lower than the real price, people have incentive to buy it.

Why? The synthetic stock isn't convertible, so there's no arbitrage opportunity.

You can "burn" the synthetic and claim part of the collateral.

I don't think there is a problem in this particular situation.

The place where there will be a problem is where MakerDAO had problems: when there aren't enough people willing to mint synthetics. The only reason to mint a synthetic is in order to sell it, in order to get a synthetic short position. If not enough people want to do this, but other people want a long position, this will generate excess demand for synthetics and the synthetics will trade consistently above the price of their real-world underlying.

This is precisely what happened to MakerDAO before it turned itself into a "stablecoin index fund". DAI was trading way above $1.00 for several months running. MakerDAO's goal was to provide a trustless stablecoin. If it costs $1.15 to buy one this week and $1.00 next week, it's not very stable. Those 15 cents didn't make DAI expensive -- they made DAI a failure at its goal of producing a stable coin.

Mirror's case is different. They're not trying to create a stablecoin. If the synthetics trade at a premium to the underlying, that difference is effectively a brokerage fee charged in order to open a long position. If the fee charged to open a long position swings around by 15% week-to-week that is certainly unattractive, but it doesn't make Mirror a failure.

This might actually work as expected. The likely failure mode will be annoyingly high fees for long positions, rather than failure to deliver on its promise (as happened with MakerDAO).

Oh you mean it is backed by those unaudited, unregulated, unredeemable opaque tokens like USDT which are also a scam.

What could possibly go wrong!

Not sure why you have to be so snarky about this. Yes, USDT has dubious backgrounds/origins... but there are lots of other reputable proejcts out there.

You can take a look at USDC (https://www.circle.com/en/usdc) which is a Goldman Sachs backed start up. They publish reserve attestations very regularly (https://f.hubspotusercontent00.net/hubfs/6778953/USDCAttesta...) and its very easy to redeem the USDC (stablecoin) for actual USD dollars in your fiat banking systems.

Perhaps you were responding to the wrong comment, but the parent was referring to a different mechanism from what USDT uses, more akin to MakerDAO. You can be skeptical of that approach as well (I am), but there’s a notable difference in implementation and collateralization ratios.

> unaudited, unregulated, unredeemable opaque tokens like Federal Reserve Notes

Would be nice if every single FRBNY operation were able to be queried by anyone in the public in real time, had a fixed set of rules all holders of notes could see and vote on, and was redeemable for gold like they used to be before the rules changed underneath holders who couldn't take part of governance (foreign holders)…

> What could possibly go wrong!

We're stuck in bailoutistan globably, and now it will be more expensive for tradfi entities to get bailed out on chain (which will happen, but cant shut down the dex's, cant reverse trades unless contracts allow for that) which will benefit non tradfi entities that take the opposite side of their highly leveraged trades conducted on chain.

There are plenty of reasons to complain about fiat currencies like USD and the rights that states claim to control all transactions or control the value of our money.

That doesn’t make using unregulated stable coins from terrible terrible people like those behind bitfinex a good idea, or mean that trustless distributed consensus is worth the massive downsides of a decentralised system like bitcoin, or that we should trust projects without the most basic financial controls.

We have laws and regulators controlling money supply and financial transactions for good reasons, most of the unregulated experiments ‘defi’ is trying have already been run in fiat and banned for good reasons, including massive leverage, unregulated banks and exchanges, money printing etc etc.

> That doesn’t make using unregulated stable coins from terrible terrible people like those behind bitfinex a good idea…

Good thing is, you personally don't have to, but others will, and you have no say over that. Heaven forbid a decentralized uncollateralized stable coin comes into existence, where its mechanisms for inflation and deflation are purely market driven, that won't be controlled by any single entity, used by people from all over the world without your (or regulators) approval… not like existing interbank eurodollar transactions have much of that approval anyways (than the same transactions, junk rated rehypothicated collateral backing that entities like bitfinex engage in, yet with lower cashflows; can't seriously sit here and tell me that regulators are in control of dollar denominated liabilities being swapped offshore everyday in non local currencies and usd deposits created from that are 1:1 backed and have FDIC coverage…).

Hell, we know more about bitfinex operations than we do of the a typical tradfi bank engaging in the same transactions overseas… what a joke lol

> or mean that trustless distributed consensus is worth the massive downsides of a decentralised system like bitcoin

Let's not pretend that there aren't any better trustless distributed consensuses systems out there that people are actively using because you would like to dismiss something you don't like/use.

> or that we should trust projects without the most basic financial controls.

Not too hard to use/build protocols that implement controls you wish and stay away from those that don't. Not everyone has to ape into shitcoins and shitchains with no research. Not everyone has to follow the whims of someone else.

> We have laws and regulators controlling money supply and financial transactions for good reasons…

That routinely fail to address (and as well as regulators failing to comprehend [at best])

> …massive leverage…

In the forms of ever novel derivatives cropping up in tradfi

> …unregulated banks and exchanges, money printing etc etc.

After talking with people who had to trade lehman positions out of administration and all the shit that went down behind the scenes… TBTF might as well be unregulated, when their positions are routinely bailed out at expense of others in many different ways and leads to people having

> … plenty of reasons to complain about fiat currencies…

That have long gone unaddressed because of the existing incentives that stand in the way. Plenty of kabuki theatre about it though from "regulators", worth about as much as the latest shitcoins cropping up.

It's a derivative, it also exists in traditional markets and it's size is gigantic compared to normal markets.

As far as I understand it, in this case, it's essentially cash settled.

I wouldn’t call stablecoins “cash settled”. Like, at all, in any sense, ever.

It is a gambling market, not a derivative.

That's mostly what they are used for anyways amongst other purposes like hedging or leverage.

There's historical reasons why bucket shop gambling is illegal, and why derivatives are regulated.

Crypto is still speed running the past 150-years or so of financial misadventures.

And pointing at how the NYSE is becoming more of a casino doesn't validate crypto doing it as well.

Crypto is starting to look more and more like the det wire that could set off the next financial implosion.

Yes and here is a good read for those that haven’t seen some of these figures.

https://www.investopedia.com/ask/answers/052715/how-big-deri...

Now compare to the M2 money supply https://www.investopedia.com/terms/m/m2.asp

I assumed they held all the securities themselves facilitated 24/7 trading like that. Not holding the securities seems extremely dodgy.

They mint and burn tokens as necessary to make the price resemble the actual stock. When minting new tokens, you have to provide collateral in the form of stablecoins. Yes, it is as bonkers as it sounds.

Just when I think the crypto people can’t surprise me any more, here they go again.

They use oracles to get the trading prices of the various assets. The actual value is held in on-chain tokens and typically requires over-collateralization.

If the hedge funds and prime brokers are allowed to sell the unsuspecting public a bunch of counterfeit shorts, why not let the crypto market do the same?

I’m only half joking.

> counterfeit shorts

Do you have a reference for something that's had issues being naked shorted, recently? GME was a short squeeze, but that's different.

Well the goal is never to have more problems. The discussion of the good or evils of regulations in general is a pretty deep debate in America though.