[zmgsabst]

No, 1-1 backing prevents this.

Let’s imagine that I have 1000 cans of beer in my warehouse and I give out 1000 tickets to exchange for a beer.

Let’s further imagine you have infinity dollars to “break the peg”. So you buy tickets, trade tickets, give them away for free after re-buying them… doesn’t matter. As many times as you want.

Everyone who has a ticket at the end can still visit my warehouse to claim a beer — no matter the financial manipulations you engaged in.

[danachow]

For a USD backed stablecoin what are “tickets” vs what are dollars in your analogy?

[zmgsabst]

Tickets are crypto tokens; beers are USD.

If I start with 1000 tokens I distribute and 1000 dollars in my vault, no matter what you do with the tokens, I can exchange a token for a dollar — because your manipulation of the tokens doesn’t remove dollars from the vault. Those only change when: 1. I receive a new dollar, so issue a token; or 2. I destroy a token and release a dollar.

“Shorting” doesn’t impact that: if you borrow someone’s ticket, then sell it for $0.85, that doesn’t create a new ticket — there is still one ticket and one beer… and one IOU. What happens to the original owner is either the borrower buys a ticket back and returns that (canceling out the IOU) or else that original owner no longer has a ticket — they’re owed the value of a ticket by the borrower.

In the case of tokens/dollars, that value is easy to assess: the person borrowing your stable coin token who fails to return it owes you $1… but that doesn’t come out of my vault, because you don’t own a token. You’ll have to get that $1 by suing the borrower over failure to deliver.

[hathym]

you can't make a profit like that. banks (and tether) make profit by miniting news tickets out of thin air, lending the newly minted tickets at a certain rate, once the credit is reimbursed they usually destroy the minted tickets and keep the profit.

[zmgsabst]

That’s one approach to profit, called “fractional reserve”.

Typically, people who want a 1-1 backed coin are uncomfortable with that model… so you instead take profit on the issuance: you charge $1.05 to issue $1 in tokens (while keeping $1 in the vault) — a process called seigniorage.

https://en.wikipedia.org/wiki/Seigniorage

[im3w1l]

$1 buys one tether. One tether redeems for $0.999. Then there's also interest on T-bills and stuff.