[loveparade]

Or maybe you just don't understand it? The whole point of USDC is to have exposure to USD and the US banking system, which is supposed to be stable compared to other banking systems around the world. Could that maybe be why it's called USDC? Hmm.

If the US banking system starts failing, it absolutely should affect USD stable coins backed by exactly this banking system.

[FabHK]

That's funny.

The USD is entirely unaffected. Some deposits at certain banks are affected for large (mostly professional) holders. Retail investors will be made whole (up to 250k), thanks to this banking regulation thingy you might have heard of.

USDC is meant to mirror the USD (sure, with its concomitant FX and inflation risk), but it is certainly not meant to introduce credit risk vis-à-vis some bank most people hadn't heard of last week.

[hailwren]

You’re aware that ~$150B of $200B SVB deposits are not covered by FDIC insurance, correct? I don’t think SVB is going to end up 0, but pointing at 25% of investments being safe and saying “look regulation works so well” seems absurd.

[lukeschlather]

All the people involved are institutional investors. 0% of people who have USD savings under $250k are affected by this. On the other hand, anybody who has a significant portion of their net worth tied up in cryptocurrency is affected by this.

[101011]

Minor correction, people employed by companies that banked with SVB are also heavily affected here.

[FabHK]

Indeed, if your company is in the banking business without understanding the banking business, you might have a surprise coming up. As in most other industries.

[radlad]

... and all the people and companies those companies banking with SVB have to pay?

[lxgr]

It‘s a bit like expecting physical USD bills to spontaneously combust due to whatever market forces.

The value of one USD stablecoin (measured e.g. in various commodities) might well go down, but the redeemability for one USD never should, regardless of the economic environment.

[re-thc]

Can't you just buy USD directly? How does that help? What does the C part of it do?

[loveparade]

No, in many countries you cannot buy USD directly. You also cannot store USD in a local bank account. And in various places it's explicitly forbidden to hold USD as savings because it would devalue local currency if everyone started transacting in USD instead.

So, the "C" makes USD exposure available to anyone worldwide, assuming you have e.g. an Ethereum wallet.

[pHollda]

If anyone doubts that this is just a theory, I can confirm it. I live in third-world countries and use USDC exactly for this.

[capableweb]

I have family in third-world countries, and usually have them buy me flight tickets when I want to visit them. Cheapest way and easiest for them to withdraw, is me sending them USDC. Some of them use USDC directly to exchange with friends for goods and services, others manage to sell them P2P in their country for USD, which they can then trade for local currency.

Messy, inefficient and UX could be way better, but it works and is cheapest for everyone involved.

[FabHK]

I have lived and travelled extensively in second and third world countries, and almost never had a problem buying or selling USD. Well, in some places there were indeed capital controls (Argentina, China), but that's rare, and I doubt use of USDC is legal then for the circumvention of regulation (which is basically the only use case of crypto).

[kaladin_1]

If only you know the long queue you have to join now if you want to buy dollars from a Nigerian bank. Not just that you have to fill a form saying what the money is for which had better be one of the things in their list, you have to wait for months to get credited.

[capableweb]

Many people visiting countries saying "I have been able to use USD wherever I go, I could even pay for dinners" miss the fact that it's often different for the people who live there, who are gonna have to integrate with the local legal/financial process in order to get their local currency. The tourist hardly have to care about it, and then they tell the internet that there is no problems.

[Scoundreller]

The big one is that many countries do offer foreign currency accounts, but don’t properly hold reserves for them, so the security is there until it isn’t.

[FabHK]

So a bit like stable coins? And do you have a source?

[Scoundreller]

https://wap.business-standard.com/article-amp/international/...

https://amp.scmp.com/business/banking-finance/article/300879...

https://enterprise.press/stories/2022/10/09/major-local-bank...

https://www.aljazeera.com/amp/economy/2022/2/3/lebanon-us-do...

> No withdrawals were allowed from accounts denominated in U.S. dollars, unless the owner agreed to convert the funds into pesos.

https://en.m.wikipedia.org/wiki/Corralito

[FabHK]

These appear to be cases where government regulation was imposed to limit access to foreign currency. Not, as you seemed to be insinuating ("but don’t properly hold reserves for them"), any problem with banks carrying insufficient reserves.

So, there was neither a technological problem moving fiat in our out of the country that would be amenable to a technological fix, nor unintended weaknesses in the regulatory regime covering local banks. Rather, it was deliberate government policy.

[vasco]

So you are saying that there are countries where USDC is legal while opening a foreign brokerage account like IBKR and converting your currency to USD is illegal? And this is not just a perceived loophole? Could you give an example of a country like this so I could google?

[Ekaros]

Important question is that what would happen if someone started asking pointed questions? About why do you transact in this and doesn't it go against laws. Would the stance actually hold...

[Gare]

Yeah, how is this different than black market trading (which happened a lot in ex-communist countries including mine, but the currency traded was usually German mark).

[re-thc]

Except it does a lot more than that as highlighted here. It's not just a USD + exposure. It's pretend to be USD + its own set of risks. I'd rather buy USD or if you can't then do something else.

[silasdavis]

It is also kind of an abstraction over cash and treasury bonds. A more liquid fractionalised cash/bond unit.

Though that seems to have been the problem here.

The original idea with a 100% collaterilised peg was that the entire reserve would be cash. Somewhere along the way treasury bonds were considered cash equivalent. Which on the face of it seems sort of reasonable but clearly they do have a different risk and liquidity profile. This allows the centre consortium to earn a yield.

So I'm not sure I think a USDC is a dollar, but also I'm not sure it's particularly different to what banks do with deposits to earn a yield.

One difference is you can reinvest the same USDC to earn a yield while the underlying backing USD also earns centre a yield.

[makomk]

Having the entire reserve as cash wouldn't exactly help here - imagine if 30% of USDC's total reserves was in Silicon Valley Bank, rather than just 30% of their cash. (I think I've pointed out before in discussions of Tether etc that stablecoins can't safely just hold their rexerves as cash in a bank account because banks can and do fail and FDIC protection basically does nothing at this scale, but I wasn't expecting it to be demonstrated quite so spectacularly.)

[re-thc]

The difference is at least with banks e.g. SVB here you get back your 250k. When these coins die you get 0.

And if only we're true to the "original idea" (whatever that might be). As seen with lots of coins / exchanges it's been a front to do something else.

[renonce]

> The original idea with a 100% collaterilised peg was that the entire reserve would be cash.

What is cash? Banknotes? You can't store 500 million pieces of $100 banknotes easily or safely.

Cash usually refers to deposits at accredited financial institutions like banks. Effectively this is an amount of money that the bank owes to Circle. The bank deposits money elsewhere, and the central place where all the money is distributed is the Federal Reserve Bank, the central bank of USA, that can never go bankrupt. OTOH, treasury bond is money that US Treasury owes to Circle, so they are not fundamentally different than cash, and in some cases it's even safer since US Treasury bonds are usually regarded risk-free.

[seanhunter]

Stablecoins are a cryptocurrency that conforms to the ERC-20 standard[1] so they can be used in blockchain applications that want something that implements that. USDC/USDT are therefore the closest things to USD that can be used in that way.

Obviously people differ as to the utility of those applications but that's what the "C" gets you. You can do those things if you want to. Of course there's quite a lot you can do with actual dollars that you can't do with USDC so you give up a lot also.

[1] https://ethereum.org/en/developers/docs/standards/tokens/erc...

[EVa5I7bHFq9mnYK]

Most stablecoins conform to TRC-20 standard, on TRON network. Ethereum use is being phased out because of high fees.

[csomar]

A more legitimate use case. An Ethereum contract that converts ETH to USDC. Say you are selling something (an item, security, service or whatever). You can accept payment in any token (in your smart contract) and the token will be converted to USDC.

[eternauta3k]

Hard if you're in a country with currency exchange restrictions like Argentina (a big adopter).

[searchableguy]

USDC is an ERC20 token on the blockchain. This is required to work with smart contracts and dapps. You can swap USDC for any on-chain asset using uniswap or mix them up using a mixer like tornado cash. It also escapes any capital controls to hold USD which is a benefit for those who are outside US and live in poor or draconian countries.

[Tenoke]

You cannot buy USD on chain to directly transact with it and other crypto, no.

[renewiltord]

You can have smart contracts off it. You can't have a smart contract off USD because USD is not a thing on the blockchain.

[mtlmtlmtlmtl]

In what universe is the US banking system more stable than other places in the world? Compared to 3rd world countries?

[beebmam]

Well, I'm pretty sure all credible banks in the US are all insured (both explicitly with FDIC and implicitly far beyond that) by the US government. That's a pretty big thing

[mtlmtlmtlmtl]

That doesn't make them stable. The 2008 financial crisis was literally caused by big US banks. They then had to be bailed out.

This is not a symptom of a stable banking system. It's a symptom of the banks having a disturbing amount of power over the government, which is not a good thing. They were able to conduct what is essentially fraud at a massive scale with impunity because they knew the gov would bail them out when shit hit the fan.

I really don't understand what's so "stable" about this.

[fladrif]

Well whether or not you think banking / government cooperation is a good thing, the fact of the matter is that even when large catastrophes occur, the system is brought back up on its feet.

You can't say the same for crypto systems, luna / terra being a very recent example.

[mtlmtlmtlmtl]

Hey, nice straw man. Of course I think banks should cooperate with the government. I just don't think banks should be more powerful than the gov, which in the US, arguably they are in certain contexts.

And I never said crypto anything was stable on any level. I genuinely believe crypto has 0 usefulness for anything other than very specialised cases, usually to do with avoiding regulation.

The point I was making was that the banking system literally caused the large catastrophe. The fact that people seem to twist this into suggesting it's stable is just absurd.

Just like if your entire SAAS product horribly crashed, deleted and/or leaked a bunch of important customer data and so on, the fact that you were able to fix it doesn't magically mean the system was stable before.

[iudqnolq]

What you're missing is the bailout is part of the system, and counts towards its stability.

In your analogy imagine your SAAS product horribly crashed and deleted customer data. So your cloud provider restored from the backups you had arranged and you were running normally soon after. Not ideal, but you had a far more stable system than someone without backups.

[_5uxp]

I'd say not majority of the banks or anything like that but top ones like Goldman Sachs (Apple's choice) is more stable than all 3rd world countries and their CB too. Because GS has money printer on their side, literally.

[mtlmtlmtlmtl]

On the other hand, you could throw a dart at a random non-US WEIRD country and find a more stable banking system..