[Tenobrus]

Actually this is no longer true. As of recently, the crypto ecosystem produced Dai (https://makerdao.com/en/), which is a fully decentralized stablecoin. I think it represents one end-state of the crypto ecosystem, blockchain transactions but with decentralized systems keeping volatility near zero.

[runako]

I've only skimmed the white paper, but this appears to be a "stablecoin" backed by crypto assets. Is that correct?

The white paper is complex, and the Emergency Shutdown price stability mechanism appears exposed to ETH price risk such that if ETH moves rapidly around the Emergency Shutdown, there's no guarantee that Dai holders could recoup on a 1:1 basis. Is that correct?

This seems to be not a dependable peg.

[miracle2k]

The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then?

DAI has been tremendously successful over multiple years and multiple bear markets and ETH price crashes; it can only do so much of course. If ETH goes to zero tomorrow, DAI holders will not be able to recoup, sure.

In fact, the real problem with DAI is that demand often exceeds supply, the latter being limited by people who want to go long ETH, so they keep having to fight DAI breaking the peg in the other direction. To solve this, they onboarded other collateral types, including the USDC stablecoin, which now unfortunately accounts for >50% of DAI collateral.

[runako]

> The Bank of England couldn't keep their peg, so what's the gold standard for a dependable cross-asset peg then?

I'm not a crypto expert, but naively I would at a minimum expect uncorrelated collateral to be part of the picture. DAI runs on ETH, so collateralizing via an ETH mechanism seems like possibly not the best choice.

I would expect that the peg would depend on something that exhibits a low correlation with crypto asset prices and a very high and dependable correlation with USD, like money market funds or Treasuries.

[Sargos]

Dai is backed by lots of different assets in the Maker Vaults. Most of them are crypto but they just added some real estate assets and the plan from day one has been to add as much diversified collateral as possible for safety and scale (Dai can't scale big enough to service the entire world on crypto backing alone).

[riffraff]

How are non-crypto assets represented in crypto space?

It seems you would need a trusted party/oracle of some kind, which creates the same problem as centralized stablecoins anew.

Edit: indeed a sibling comment mentions they have USDC as a backing support which means they are as stable as that.

[whimsicalism]

> It seems you would need a trusted party/oracle of some kind, which creates the same problem as centralized stablecoins anew.

If it is multicollateral, then yes, it somewhat involves trust, but you are dependent on a lot of various people betraying trusts along with ethereum price dipping, whereas a traditional stablecoin is entirely dependent on one entity.

[shkkmo]

Divirsification of assets does help reduce risk. However, you can't eliminate that risk without holding reserves that are entirely made up of the pegged currency.

[graeme]

A substantial chunk of DAI is backed by USDC. USDC has never been audited, and has been curiously late with its attestations at precisely the same time the supply of USDC has massively increased.

And the value of ETH backing DAI is dependent on Tether not being fraduluent and instead being worth $1.

[sushid]

You think a joint collaboration by Coinbase and Circle with monthly audits has "never been audited"?

https://www.centre.io/usdc-transparency

[graeme]

It hasn’t, no. Those are attestations, not audits.

You won’t find the word audit on that page or in the reports.

[sushid]

I thoughts an attest is a form of audit. Can you explain why you think this is insufficient?

And aren't these reports going to take time to complete? Every report in the past took about a month to complete and I don't see why that's a red flag.

[rojeee]

Former auditor here.

An attestation offers considerably less assurance than an audit.

An audit is the most comprehensive type of assurance. Often called positive assurance. A clean audit opinion means the auditor collected sufficient and appropriate evidence to form an opinion on the financial statements (or reserves in tether/usdc case).

On the other hand, an attestation or review is a form of negative assurance where auditors state that nothing has come to their attention to indicate that subject matters or financial statements contain a material misstatement. In this type of assurance, auditors do not give an opinion; they simply say that financial statements look "reasonable".

Unlike positive assurance, auditors are not required to obtain sufficient and appropriate evidence to form an opinion. Instead, they only need to review if there are any problems with financial statements or subject matters.

[graeme]

Thanks! How would an attestation work with a fraud. For example, suppose a company simply produced a false bank statement.

Would an attestation have no ability to verify that the statement was fraudulent? In other words we must trust the entity undergoing attestation in order to rely on the attestation, and the attestation merely certifies there is no error of math or logic in what was presented.

[graeme]

They seem to have caught up somewhat for the April report, but March was extremely delay. News article below.

I’m not an expert, but I think an attestation just examines if a statement makes sense. My accountant did one for my revenues and the percent that were in USD. I sent them a spreadsheet with my revenues from various sources and calculations showing total USD.

The accountant verified that my spreadsheet said what I said it said. However, they did not actually verify the info underying the spreadsheet beyond examining some screenshots of customer addresses I provided. They samples a handful at random.

In USDC’s case, I think the auditor would look at a bank statement and say “the bank statement on May 31st indeed says Circle has $X” and Circle says this money is theirs for backing USDC.

Stuff they wouldn’t verify:

* Was the money there before that specific minute of the day?

* Did it remain there after?

* Was the money from deposits, or was it from a loan or some other source? (Bitfinex did this with a prior attestation, mixing up Bitfinex’s money and reserve funds)

So most people would assume these attestations mean “At all times USDC had backing of basically all of their tokens by $ in a bank account, free and unencumberer” but the attestations don’t examine that claim at all. They examine a very specific moment in time, and don’t examine the source of the funds.

In an audit you might actually examine the accounts at a time not chosen by Circle.

https://news.bitcoin.com/usdc-attestations-run-late-raising-...