[Sloppy]

Thought experiment #3

Create a hypothetical new stable coin. Issue one coin for every dollar put into the stable coin. For every dollar subtracted pay out the dollar and take the coin out of circulation until another USD comes back in. Make money on exchange fees ONLY. No fair using the coins or dollars in any other way.

The schemes for stable coins ALL have failure mods until someone does #3. The most likely entity to do #3 is the US treasury (or other national entity). But if someone is willing to live with income from fees only, they could do #3. Crypto currencies have efficiencies enough to make this a viable option.

[betwixthewires]

Sure, direct 1:1 collateralized stable coins work, but look at the "algorithm" behind the underlying asset.

USD itself is an interesting stablecoin, algorithmic in nature with a board able to make decisions to change the algorithm. It is not pegged to an asset, rather it attempts to be pegged to an economic state, primarily an inflation rate, using issuance and purchase of other assets. It has failure modes as well.

Note that algorithmic and reserve based crypto stablecoins are both exposed to this, since one is backed and the other is pegged to it.

So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency. This is hard to do with collateral, some gold backed coins try. Pegging a stablecoin to some commodity or asset or index or "basket" algorithmically is much easier, if somewhat less stable depending on the system that is built to do it.

[TuringNYC]

>> So if you want to avoid that, you need to peg your cryptocoin to something without that, i.e not a fiat currency.

Except is that really the issue? We're not trying to worried that dollar slides and hence the stablecoin is worth less. We're mostly worried that there arent dollars backing the stablecoin to begin with.

[betwixthewires]

Mainly with stablecoins we are worried that there's no 1:1 correlation between the two assets. Whether they're backed or not is an implementation approach.

People are worried that the dollar slides, which was a big motivator for bitcoin in the first place. But my point is simply that the dollar is an algorithmic asset who's algorithm is governed by a governance body and has a targeted value based on economic factors, and if you don't want that, you should peg to an asset that does not have those properties.

If you want to do backing with dollars it's easy, just spin up a corporation, keep dollars on a balance sheet and you're done. Doing it with other assets if you want requires vaults and things, it's much easier to do it algorithmically, and the only reason reserves are easier with dollars than with other assets is that other assets actually exist, dollars are just a ledger in a computer, again, controlled algorithmically and governed by a board.

[yunohn]

You’re arguing past the other poster. The dollar sliding shouldn't affect stable coins, and is unconnected to your inflation hedge in Bitcoin.

Why don’t any entities exist that do this “easy” method? Like you said, it should be straightforward. Well, because of their #3, stables want to make more money from their cash and aren’t satisfied with just tx fees.

[carlosdp]

This already exists, Circle Finance + Coinbase issue USDC, for example. It's just backed by 1:1 actual USD (at least it will be 1:1 very soon, as in 100% reserve, according to public statements, I haven't checked recently if that is complete).

[whimsicalism]

They definitely do not back with 100% paper. They hold bonds and potentially corporate paper as well.

[TuringNYC]

Is there a central location where the public can see the public statements frequently updated? I'm very skeptical about a public filing from three months ago when collateral was worth 2x what it is today...

[ac29]

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

The extent of the detail that is given in the latest report is that their backing assets are "limited to cash and short-dated U.S. government obligations".

[tomatocracy]

Even this scheme is subject to the risk that the "issuer" of the stablecurrrency stays solvent enough to pay the operating costs of those trades (or at least that there is a sufficient supply of replacement issuers and the legal system and government where the issuer is located appropriately recognise segregation of those assets on a bankruptcy and that it has a low cost and efficient bankruptcy regime), or if it's the US treasury the risk of expropriation of a change to the system which could be different from the risk with traditional currency. Ultimately you're taking credit and/or performance risk on someone.

[zmgsabst]

I’ve been hoping we get #3 but with commodities and precious metals.

I want a “stable token” that represents barrels of oil, wheat, etc or physical gold, silver, etc.

The argument against the gold standard is that there isn’t “enough” to represent money — but I think we’d gain a lot of stability if prices were denominated in a basket of commodities.

[causalmodels]

Not really sure this would work. The problem with physical commodities is that you actually have to store them somewhere.

[tomatocracy]

Not to mention that there is already a small industry which does this electronically (LME warehouses) and in a way which is trusted by the largest traders in the business. Why wouldn't you just use that instead?

[hypertele-Xii]

Having to store digital crap securely turns out to be a far bigger problem than most people realized.

Maybe still less than physical commodities, but let's not pretend crypto is "free" and easy to store and takes up no space.

[causalmodels]

The cost of storing a digital asset be it USD, a futures contract, or crypto is significantly less than paying to store physical goods. I don't see how this is up for debate.

[lottin]

> The argument against the gold standard is that there isn’t “enough” to represent money

I literally have never heard this argument against the gold standard.

What amount of gold would be needed for it to be able to sufficiently "represent money"?

And why do you need gold to "represent money" anyway? Isn't gold itself money under the gold standard?

[not2b]

During the 19th century, the gold standard led to crazy inflation as new gold was found, followed by crazy deflation as the gold strikes got used up. Farmers were struggling because the money they borrowed to be able to grow crops would drop so much in value by harvest time.

This is what William Jennings Bryan's "Cross of Gold" speech was about: he was pushing for the free coinage of silver at a ratio of silver to gold of 16 to 1. This would have increased the money supply (silver as well as gold would be money) and replaced a deflationary environment to an inflationary one. Now, you can argue that this proposal was a gimmick and argue about whether it would have worked. But the point remains that the gold standard as implemented in the 19th century was a disaster for debtors and farmers had to borrow every year, unless new gold was discovered somewhere recently.

[SilasX]

They have XAUT and PAXG as ERC20 tokenized gold. Article (sorry if shady):

https://www.publish0x.com/journey-to-the-cryptocurrency-ocea...

[landemva]

>> The argument against the gold standard is that there isn’t “enough” to represent money

I hadn't heard anyone seriously say that. What amount of additional gold should be mined to fix this alleged problem?

Since there are 84M Litecoin, is LTC 4x better than BTC with 21M?

https://www.investopedia.com/articles/investing/040515/what-...

[nradov]

There are already ETFs which hold precious metals and other commodities. But most commodities aren't really "stable" stores of value themselves. Large quantities of wheat or oil can only be stored for a few years at most before they start to rot or decay. Storage is also quite expensive, especially when you run out of big oil tanks and have to charter tankers to hold the overflow.

[whimsicalism]

Yeah, but now people have to actually trust that you are being truthful about your backing.

[e9]

yes and a lot of these coins claim they are all backed but it's just a lip service, it's too lucrative to not do full 1-1 backing, you are right only something like US treasury can do it.

https://markets.businessinsider.com/news/currencies/tether-c...

[pavel_lishin]

Isn't this what Tether purports to do?

[baq]

Tether is the next Big Short of the crypto community. I’m yet to find someone who doesn’t think tether will blow up. It’s going to be an interesting week when that happens.

[drexlspivey]

I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989.

You are probably going to respond with the "markets can stay irrational longer than you can stay solvent" meme but I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else. There is no scenario where USDT goes to $10 and you lose your money.

[chowells]

You can't just short something you know is worthless. Maintaining the position has costs, but that's not even the problem. If the asset collapses to zero like you believe it should, that usually comes with a halt on trading it. That means you can't actually buy the assets you need to close your position and profit. You can actually be left on the hook for interest on a loan that can never be exited.

Making money as a result of knowing something is fundamentally worthless is actually quite difficult.

[dereg]

That's not how perpetual futures work. Perps settle in cash, not the underlying. You pay interest in the form of funding, which is paid every x hours. The primary risk of using perps is if the insurance fund gets wiped out due to slippage.

I too encourage bearish folks to short Tether. Otherwise, there's simply nothing else to back their claim other than their uninvested belief.

[kortilla]

And when tether is frozen on the reference for the future settlement?

[TuringNYC]

Thanks for this comment.

Sorry for my naive response.

Which product exactly are you speaking about? Could you link to the product and/or exchange where "USDT perpetual futures" are traded? I can see BTCUSDT futures (but then, you're taking another risk on BTC itsself sinking), is there a way to short-USDT-long-fiatUSD?

[fjkdlsjflkds]

1) Have some collateral (BTC, ETH, USDC, something you somewhat trust);

2) Use collateral to borrow 1M USDT from AAVE/Compound/whatever;

3) Trade 1M USDT for ~1M of some USD-stablecoin you trust (USDC?);

4) Wait for USDT to crash;

5) Buy 1M cheap USDT from decentralized exchanges (using the USDC you kept aside), which will cost you less than 1M USD;

6) Pay back loan (keeping the difference as profit) and get back your collateral.

[drexlspivey]

This one on FTX for example https://ftx.com/trade/USDT-PERP

[ceejayoz]

> I don't see any downside to this trade other than the opportunity cost of investing your dollars somewhere else.

Shorting comes with interest fees for the borrowed asset. If Tether holds off a collapse for a few years, that can get substantial.

[drexlspivey]

I am talking about futures not shorting, no borrowing fee if you don’t do it on margin.

[ceejayoz]

Then you're talking about a setup where a) the counterparty can fail a margin call and b) the exchange it's happening on can get hacked or go bankrupt.

No fucking thank you.

[quickthrower2]

> There is no scenario where USDT goes to $10 and you lose your money.

It is possible (even if unlikely) because cryptocurrencies backed by absolutely nothing have value - and arbitrary value at that.

To make it happen Tether could announce they are unpegging and will spend 1Bn to buy back tether at any market price on exchanges. The gambling masses join in. Suddenly Tether is another mooncoin.

[dereg]

This couldn't be further from the truth. Market makers would be glad to sell Tether at a premium. Bitfinex only has enough money so as to retire all Tether coins and buy not a cent more. That said, if you're truly bearish on Tether, then you should believe that Finex doesn't have enough money to retire all Tether coins.

[quickthrowman]

> I mean if you are so sure about that the trade is pretty simple. You can trade USDT perpetual futures currently at 0.9989.

On an unregulated exchange where the operator: can see your stops, knows your margin/liquidation price, and can manipulate the price/order book to liquidate you and take your money? I think I’ll pass.

[dereg]

If you're worried about stop/liquidation hunting, you can establish a 1x position that involves zero leverage and zero chance of getting ADL'd out of a position.

[enkid]

How is this different from a bank account?

[zmgsabst]

The bank doesn’t actually store your dollars and your bank account can’t make transactions on the blockchain.

[lxgr]

And where would the issuer of such a hypothetical stablecoin store actual dollars, if not in bank accounts or government bonds?

[runeks]

What’s the practical difference between this and a debit card?