It's so ridiculous I just have to kind of admire it. It's like a cathedral of human hypocrisy.
If the US banking system starts failing, it absolutely should affect USD stable coins backed by exactly this banking system.
This is not a symptom of a stable banking system. It's a symptom of the banks having a disturbing amount of power over the government, which is not a good thing. They were able to conduct what is essentially fraud at a massive scale with impunity because they knew the gov would bail them out when shit hit the fan.
I really don't understand what's so "stable" about this.
You can't say the same for crypto systems, luna / terra being a very recent example.
And I never said crypto anything was stable on any level. I genuinely believe crypto has 0 usefulness for anything other than very specialised cases, usually to do with avoiding regulation.
The point I was making was that the banking system literally caused the large catastrophe. The fact that people seem to twist this into suggesting it's stable is just absurd.
Just like if your entire SAAS product horribly crashed, deleted and/or leaked a bunch of important customer data and so on, the fact that you were able to fix it doesn't magically mean the system was stable before.
In your analogy imagine your SAAS product horribly crashed and deleted customer data. So your cloud provider restored from the backups you had arranged and you were running normally soon after. Not ideal, but you had a far more stable system than someone without backups.
Asserting that bailouts are simply "part of the system" is just a cop out.
It doesn't respond to points about the behaviour of the bank which was key to my argument. Maybe read and try again.
I will repeat again at the risk of sounding like a broken record. There is no sane, logical way of arguing that the behaviour that led to the 2008 financial crisis is that of a stable, well-regulated banking system. If you believe otherwise, you are either on drugs, or have done no research, or both.
Though that seems to have been the problem here.
The original idea with a 100% collaterilised peg was that the entire reserve would be cash. Somewhere along the way treasury bonds were considered cash equivalent. Which on the face of it seems sort of reasonable but clearly they do have a different risk and liquidity profile. This allows the centre consortium to earn a yield.
So I'm not sure I think a USDC is a dollar, but also I'm not sure it's particularly different to what banks do with deposits to earn a yield.
One difference is you can reinvest the same USDC to earn a yield while the underlying backing USD also earns centre a yield.
And if only we're true to the "original idea" (whatever that might be). As seen with lots of coins / exchanges it's been a front to do something else.
What is cash? Banknotes? You can't store 500 million pieces of $100 banknotes easily or safely.
Cash usually refers to deposits at accredited financial institutions like banks. Effectively this is an amount of money that the bank owes to Circle. The bank deposits money elsewhere, and the central place where all the money is distributed is the Federal Reserve Bank, the central bank of USA, that can never go bankrupt. OTOH, treasury bond is money that US Treasury owes to Circle, so they are not fundamentally different than cash, and in some cases it's even safer since US Treasury bonds are usually regarded risk-free.
So, the "C" makes USD exposure available to anyone worldwide, assuming you have e.g. an Ethereum wallet.
Messy, inefficient and UX could be way better, but it works and is cheapest for everyone involved.
> No withdrawals were allowed from accounts denominated in U.S. dollars, unless the owner agreed to convert the funds into pesos.
So, there was neither a technological problem moving fiat in our out of the country that would be amenable to a technological fix, nor unintended weaknesses in the regulatory regime covering local banks. Rather, it was deliberate government policy.
Cuz they spent/seized the bank’s foreign currency before you, the depositor, could spend them. So much for trying to protect your assets by holding them in foreign currency.
Obviously people differ as to the utility of those applications but that's what the "C" gets you. You can do those things if you want to. Of course there's quite a lot you can do with actual dollars that you can't do with USDC so you give up a lot also.
[1] https://ethereum.org/en/developers/docs/standards/tokens/erc...
The USD is entirely unaffected. Some deposits at certain banks are affected for large (mostly professional) holders. Retail investors will be made whole (up to 250k), thanks to this banking regulation thingy you might have heard of.
USDC is meant to mirror the USD (sure, with its concomitant FX and inflation risk), but it is certainly not meant to introduce credit risk vis-à-vis some bank most people hadn't heard of last week.
The value of one USD stablecoin (measured e.g. in various commodities) might well go down, but the redeemability for one USD never should, regardless of the economic environment.
Is it audited by the SEC or some "auditing firm"?
A Ponzi scheme pays a dividend or share of fake “revenue.” Stablecoins don’t make money, unless lent out.
Like if a bank has $10B in customer deposits and one of their armored truck drivers escapes across the border with $2B, then some customers can't be paid back when they try to withdraw, does that make it a ponzi?
Terra/Luna anyone?
(I'm no expert though, correct me if I'm wrong)
Edit: Parent comment is now correct
USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase. Circle used SVB.
That's why Coinbase are stopping withdrawals.
DAI has quite a substantial percentage of USDC in their reserves as well.
We could witness another death spiral. Let's see how events turn out to be.
https://twitter.com/stablekwon/status/1523733542492016640?s=...
As someone who only observes crypto, the past 4.5 hours (at my time of writing) has been interesting to watch.
But if you can't redeem it and it's not backed anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.
The federal reserve could stand to learn a thing or two, honestly.
The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants.
USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.
Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.
This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly.
So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.
The places where I've seen this mostly work was near borders, and it makes sense that you'd accept the neighbour currency there even if it is some overhead. If you can quickly hop over the border you're much less likely to exchange currency before than if you plan a full trip in a different country.
At least in Australia, I'd be surprised if more than a single digit percentage of the population would be able to tell if the (US) currency someone presents is real vs pretend/monopoly money.
They'd most likely thing the person is trying to scam them.
Mexico, Costa Rica, Panama, Nicaragua, Belize, and Colombia are places where I’ve done this personally and lots of Europeans were doing the same.
Friends and family in Costa Rica even advised that local currency wasn’t necessary and suggested bringing crisp bills from my bank.
But now that you point out "developing countries", that does seem more likely. :)
Or at least nicely told to go and exchange it for real money (local currency) somewhere, then come back and try again. :)
If it's in advance of giving you your coffee, no, they could demand you pay in dogecoin only if they wish.
And your specific comment that started this didn't read like you are only argued about developing world. My 2c.
(In small towns it may be more difficult, but not impossible, specially if you are nice.)
Here are a few cherry picked examples
https://www.reuters.com/world/americas/half-payments-caracas...
https://www.tripadvisor.com/ShowTopic-g293974-i368-k4798488-...
https://www.voanews.com/a/lebanon-leans-on-us-dollar-to-cope...
In most cases e.g. a French tourist would be fine taking euros, but a British tourist can take pounds and not pay to convert to dollars or euros first.
Kenya and Egypt are two examples.
I've seen Americans try to pay for taxi's in Thailand with USD, the drivers aren't interested, it's a hassle more than anything. In cambodia on the other hand, yes, they'll take it.
Depends entirely on how stable the local currency is, if it's reasonably stable and well managed then probably they won't be interested.
In other words, money.
_Libya_
2008 https://www.cfr.org/blog/libya-shunning-dollar (Libya Shunning the Dollar?)
2011 Invaded
_Iraq_
2000 https://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut... (U.N. to let Iraq sell oil for euros, not dollars)
2003 invaded
2006 https://www.aljazeera.com/news/2006/2/14/syria-picks-euros-o...
No direct invasion but proxy war (lessons learned).
Even in those parts of Mexico and Caribbean countries where the economy is heavily dependent on US tourism - and the US dollar will be accepted at retail shops; the price difference between paying in dollars and paying in local currency is going to be against the US dollar, and for any significant transaction, you will be better off paying in the local currency.
More to the point, it is true that a considerable part of international trade is conducted in USD. It is also true that the USA tries very hard to keep it like that (more so through economic sanctions than the military might), but it's hyperbole to state that any country that does not accept USD will get attacked.
For example, India and China buy a non-trivial part of their oil in roubles and have not been attacked - so far.
How could you mistake a coffee shop for a country?
Seems like you want to misread me on purpose?
If they get a deal with an oil selling country that says otherwise, USA sends in the army (usually to the seller, not the buyer).
You said "countries that depeg". Pegging, in the context of cryptocurrencies and regular ones, means something specific: ensuring that the exchange rate between the 2 is fixed within a certain band. I don't believe that the US is threatened by whether other countries peg their currency to the dollar or not.
The dollar's use as reserve currency is a separate matter.
I assume per your definition of "country" Norway should be a country as well.
Norway is a major party in selling oil and gas, but doing it so in NOK. Norway is not even part of NATO. At least until now.
So when do you expect an attack by the USA military?
"In Consideration of the assignment described under Article 2.1 above, Buyer shall pay to Seller a post tax amount of NOK [zz] ([zz]), ref. Article 5."
https://offshorenorge.no/globalassets/dokumenter/naringspoli...
Also the measurement is NOK: https://www.norskpetroleum.no/en/production-and-exports/expo...
NOK is recommended. That document doesn't say what currency is used for actual transfers.
Its neighbors Sweden and Finland are EU members whose citizens have recently come to widespread agreement that NATO membership is desirable.
Odd… because the head of NATO is Norwegian.
Your entire comment is completely misinformed.
The USD has value because you need to pay your taxes in USD, and if you don't pay your taxes, the government will take away your freedom. It has nothing to do with people in other countries transacting in that country's local currency.
If it was about taxes people would just hold something else and converted some temporarily to pay their taxes leaving government with currency nobody wants.
It's all about people's trust and willingness to store savings and make loans in a given current.
Wouldn’t this expose those people to exchange rate risk that they could completely avoid by holding USD instead?
Not following this at all. You having to pay tax in USD means you're going to prefer holding USD and being paid in USD as well. Anything else would be strictly inferior, as now you have to worry about doing conversions all the time.
Note that it's mandatory for taxes to be withheld with each paycheck, and those withheld taxes must be paid in, you guessed it, USD, so you must be paid in USD as well.
Huge part of the world have to pay taxes in their local currencies and yet prefers storing savings in USD.
> Anything else would be strictly inferior, as now you have to worry about doing conversions all the time.
You weight it against other pros and cons. Even US billionairs do not store their savings in USD cash, and don't seem to mind "conversions all the time".
Happy to bet on that ;)
this is one of the silliest comments I've ever seen on HN.
Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators.
Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box.
IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.
Few understand.
[0] https://www.wsj.com/articles/crypto-companies-behind-tether-...
Only in the PR sense. A rug pull is inevitable.
On the bright side, when it crashes it'll take what's left of crypto with it.
you can't sell me USDC because I'm not buying. "X scam is more of a scam than Y scam" is not a sales pitch for Y. it's a statement that should lead you to reconsider why you have any money with any of these people. or, you know, you can be another notch on the belt of the grifters, scammers, and vultures that dominate crypto. I guess the second is a more exciting way to live.
Ok I'll buy that if you or I wanted to sell treasury bills, but... if a company needs to liquidate $10B of treasury bills over the weekend, can't they just call up the CEO of JPMorgan and say "hey we'll give you 10 basis points over Monday's 9AM rate" and make a deal happen?
When things stabilize and start going down, it's like the morning after the frat-party, bad things come to light. Crypto is fundamentally a negative sum game, it takes enormous resources to run and has generated a large number of self-minted millionaires that have cashed out and lamboed their earnings. There is very little actual marketable utility that crypto provides that could cover these large outlays, perhaps with the exception of facilitating money laundry and illegal transactions. I guess that's a business, but (hopefully) not a multi-trillion business suggested by the bubble's peak.
So it's inevitable the game must end with someone holding the bags.
Similar to SVB, from what I understand. SVB parked several billion in treasuries when rates were at ~1.6%, when interest rates went up, that portfolio drew down, they exited with a loss, this triggered a run.
So if Circle has 70% of its reserves in T bills, they possibly took a market to market loss too, depending on how they were hedged.
(Disclaimer: i have not seen SVB balance sheet, nor Circles.)
Although, still room for losses with those numbers ($50B) https://ycharts.com/indicators/3_month_t_bill, and make them more likely to want to hold to maturity.
But not because rates do not change (they do, a lot: for example 3-month rate jumped by over 0.5% in 2 weeks of Oct 2022). But due to the short duration such change barely affects the remaining interest paid by each bill, which is what determines bill's price.
It dipped as low as .82 on Gemini. I used the chance to buy some to settle a debt denominated in USDC on Compound, though I haven’t yet paid it back because transaction fees on the ethereum network surged too.
DAI fell below .90 even though it’s so overcollateralized that even the 100% loss of SVB funds shouldn’t make it insolvent: https://news.ycombinator.com/item?id=35105876
>USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg
Nit: liquidity pools (at least of the kind described in the link) are decentralized and don’t live on an exchange.
If more than $11.1B of USDC were to be liquidated over the weekend, USDC would be insolvent. Freezing trades until the market reopens prevents this. USDC should remain stable because it is backed by very liquid assets, but it will probably lose marketshare.
https://www.circle.com/en/transparency