That's nonsense. When something as big as Tether falls the entire sector is going to fall apart. Everyone will run for the exits, USDC holders as well. I would not coount on Coinbase having enough real money to cover USDC redemptions. https://www.bloomberg.com/news/articles/2021-08-11/coinbase-...
Would you gamble your entire investment on that? If Tether collapses, there will be major outflows from all stablecoins, and we'll find out which ones have been swimming naked.
Circle [0] and Coinbase [1] have recently reported that they are shifting their USDC reserves fully into short-term liquid assets. Given that both Circle and Coinbase are US-regulated, and given the attention being paid to stablecoins specifically by US regulators right now, USDC is probably the safest on-chain asset that currently exists (assuming that you consider USD itself to be a safe asset to hold).
Domiciled is probably a better term than "regulated" for USDC. To quote their homepage disclosures box:
> Digital asset markets and exchanges are not regulated with the same controls or customer protections available with other forms of financial products and are subject to an evolving regulatory environment. Digital assets do not typically have legal tender status and are not covered by deposit protection insurance.
They're regulated as money transmitters like Venmo, and depending on the state, that can mean as little as "pay us a few thousand dollars and we'll ignore you." This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions. Thats why they were able to invest the backing in ... whatever before the SEC came knocking.
> that can mean as little as "pay us a few thousand dollars and we'll ignore you."
This is simply not the case. Most, if not all, state money transfer regulations mandate financial reporting to the state, and place limitations on the permissible investments that a licensed entity may hold as backing for customer obligations held in trust. Any failure to comply will result in fines and/or loss of the license (which effectively results in the closure of the money transmission business).
A number of states (California and New York among them) also conduct on-site examinations of licensees' businesses (paid for by the licensed entity). As someone who was has served as a senior executive at a company that undergoes these examinations regularly, I can assure you that they tend to be rigorous and all-encompassing.
> This regulatory framework was created as a way of side-stepping the more onerous regulations that apply to real depository institutions.
This regulatory framework was not created as a way of sidestepping anything. It was created as a way to proactively regulate money transmission.
Money transmitters are not depository institutions; they serve a different, more narrow economic function, and existing regulations are properly tailored to that economic function. In practice that means that money transmitters are required to maintain 100% reserves backing any and all customer obligations, they must hold their reserves only in certain permissible investments (i.e. government debt and bank deposits), and they are required to obtain surety bonds to further insure those obligations.
Venmo, PayPal, Western Union, Money Gram and dozens of other companies are all subject to these requirements, and there has never been any instance that I am aware of where this regulatory arrangement has resulted in consumer funds being lost, in the twenty years since this regulatory regime began to be fully implemented after passage of the USA PATRIOT Act.
Furthermore, I am not seeing what the material difference is between the outstanding obligation represented by USDC and the outstanding obligation represented by a PayPal or a Venmo account. The fact that the law treats them the same is entirely appropriate.
Tether is a problem precisely because it is unlicensed and has thus far illegally evaded these regulations. The fact that Tether is operating illegally in the US should not impugn its competitors that are in fact operating legally.
I would. I'd wager Tether's collapse would cause inflows to other stablecoins. It's also worth noting that smart contract based stablecoins, such as DAI, are incapable of being under-collateralized.
Knowing pretty much zero about DAI (and honestly, not too interested to spend any time to learn), this still sounds incredible. Does that incapability hold even if prices of whatever underlying assets are not continuous? Like, at one point of time the asset is trading at 100 dollars, and at the very next moment it trades at 1, with no possibility for anyone to trade at 50 at any point in between?
I very much assume not. If you think that is laughably stupid to assume that prices would not be continuous, well, you are in good company, even some Economics Nobelists have fallen on that trap. And lost billions. In that case you may want to spend some time researching what comes up when you search for LTCM.
From where? USDT will be worth exactly $0 so some 80% of all trading volume in crypto will evaporate instantly, and so will probably 80% of its dollar equivalents.