[phire]

USDC's "custody accounts" aren't cash either:

"US Dollars held in custody accounts are the total balances in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders at the Report Date."

[woah]

That sounds like a bank account. Are you criticizing USDC for not being as safe as paper dollars in a mattress?

[airza]

Bank accounts are insured against counterparty risk by the FDIC.

[ur-whale]

Yeah, 100% agree.

The notion of counter-party risk is understood by a tiny fraction of the folks who participate in finance.

[makomk]

At this kind of scale, I don't think there's such a thing as plain "cash" free of any counterparty risk - even just holding it in a bank account has risk attached (and most banks probably don't want an account with that much money in it because that would pose risks to them - they have the exact same problems finding somewhere to put it). US treasuries and AAA-rated bonds and commercial paper are about the best you can do.

[lordalch]

I remember reading about some folks who wanted to open a bank that wouldn't make any loans, but rather just take store all their deposits as excess reserves at the federal reserve. They would take a few basis points for themselves, but offer their customers a way to have truly cash deposits that earned some interest with the absolute minimum amount of counter-party risk.

The Federal Reserve didn't approve them to do that, because they were worried that it could "destabilize the financial system."

[bko]

That's called a narrow bank. It's one of those stories you hear about that really make you question the incentives of these large government organizations like the fed. Makes you realize that their goal is not necessarily aligned with the average every day citizen, but rather keeping up this economic system we seem to be stuck in:

> The Fed raises three main objections. 3 The first is macroeconomic: The Fed worries that narrow banks could mess with the implementation of monetary policy, because if they succeed they will keep a lot of money at the Fed, increasing the size of its balance sheet...

> Second, it worries that narrow banks will take funding away from regular banks, making it harder for those banks to trade stocks and bonds (a business largely funded by repo), and maybe even making it harder to make loans...

> Third, the Fed worries that having too safe a bank would be bad for financial stability: In times of stress, everyone will flee from the regular banks to the super-safe narrow banks, which will have the effect of bringing down the regular banks

https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...

[seanhunter]

Source please?

The deposit rate that customers expect is higher than the rate they would get for storing liquidity with the fed so their spread is already negative. That means there already isn't anything for them to "take a few basis points for themselves" out of.

The Fed pays 10bps IOER or IORR rates https://www.federalreserve.gov/monetarypolicy/reqresbalances...

CDs are paying about 45bps eg https://www.salliemae.com/banking/certificates-of-deposit/?d...

So on a gross basis this plan already loses them 35bps before any costs they have themselves. If they actually planned to do this and the fed didn't approve the plan, it's because it's not economically viable not because it somehow posed a threat to the system.

[imtringued]

For there to be a "deposit only" bank, there must also be a "loan only" bank.

If the money just sits there in a bank account and rots for all eternity you get unemployment and deflation.

The solution to this problem has been to loan out money so that someone else invests the money on your behalf. Inflation exists as an incentive to invest your money and since future incomes are greater (thanks to inflation) it is not very difficult for the borrower to pay the loan back plus some.

Investing doesn't make sense if you have deflation. You can just sit on the money and get rich by on the backs of others. A growing unemployment rate is unavoidable. To maintain stability you would somehow have to get rid of all the useless people or make them work for goods instead of money.

[H8crilA]

Short dated treasuries are practically indistinguishable from "cash". They're counted together on corporate balance sheets.

Also, what do you mean "cash"? Printed bills? Deposits in commercial banks' checking accounts? Would savings accounts count too (they can be frozen for some amount of days)? Deposits in Fed accounts?

[ur-whale]

You're right. These days, the word "cash" is basically meaningless for anything bigger than buying a bagful of groceries at the store.

And it's not going to get any better.

What sad times we live in.

[H8crilA]

Nothing has changed for many decades, actually. For much longer than I'm alive, for instance. There's nothing new in money classification, currently.

[Lionga]

what defines an "approved investment" ?

[csomar]

> you agree Circle is free to use the funds provided for its own purposes prior to redemption subject to the terms of this Agreement.

> Circle may also invest these fiat funds in highly-liquid, AAA-rated fixed income securities.

I wrote about this here: https://omarabid.com/usd-stable-coins

Only Gemini USD is fully backed by US treasuries. Everyone else is using this money to play roulette.

[SilasX]

Yes! And it redeems on demand! But what’s perplexed me is, the Gemini dollar (GUSD) is somehow more volatile than Dai, which uses much more complex, experimental means of stabilizing its value:

https://coinmarketcap.com/currencies/multi-collateral-dai/

https://coinmarketcap.com/currencies/gemini-dollar/

[csomar]

That's economics for you! Your perception doesn't not much reality. The idea that because you can redeem at face value for 1:1 and you have stronger guarantees, then it should have a less volatile price.

In reality, it comes down to market makers and market adoption/liquidity. That's why Tether could keep the beg at 1:1 despite having very little liquid cash. Liquidity will come from investors, and actually the more the better. Smaller fish like GUSD will not have that much interest from market makers.

[SilasX]

It doesn't need interest from market makers. You want GUSD, you can buy it from Gemini at 1:1. You want to sell, they redeem at 1:1. You don't need market makers unless you want to get ripped off.