“We are currently sitting on a time bomb,” he says. “This is because a lot of money held in stablecoin is not collateralised.
“Some reserves do exist, but existing banking regulations rightly designed to prevent money laundering mean they can be difficult to cash in. Nor are they necessarily backed by real assets.”
Not asset backed? Then not really stable coins, are they?
As for Celsius, bank run anyone? Deposit withdrawal is more liquid than asset liquidation yet again …….
This is what I didn’t understand about stable coins. If your pegging the value against government money, all you’re really achieving is a transfer mechanism for government money that’s outside the regular banking system. So you’re pretty well tagging each exchange operation as something where the person doing it didn’t want the traceability of that system & thus warrants investigation.
To be viable, a crypto currency has to attract the confidence that it can reliable & directly be exchanged for goods, services & assets. It has to create its own token value, not derive it from its exchangeability. That would be a second order characteristic.
The biggest use is, apparently, to be able to convert fiat into crypto via a stablecoin. Also, to move value around the crypto system….
Question about money. If you only have a token of value would you actually ever get general inflation? If the supply of goods fails to meet demand, markets will cause the price to rise. But the only thing will pay for them is the sale of services or assets. So the corresponding values must fall to compensate. It sums to a net zero.
So we only actually get inflation due to government?
BiS, the main issue in crypto is converting from crypto to fiat. It is easy to convert from one crypto to another, but crypto value fluctuate widely so not really a good way to realise gains. Stablecoins were seen as a compromise, they are cryto and so could be converted easily, but also pegged to fiat so should be stable. Most claimed to have fiat reserves equal to the value of the coin, but as the story of tether shows, they shopped around until they could find a tame bank and then did some dodgy moving of debt between partner companies to make it look like they had the backing.
While you’re not wrong, the ‘official’ reason stablecoin exists is to deal with fluctuating transaction fees. In Etherium the ‘gas price’ (the cost you have to pay to the verification nodes) can spike significantly over the timeframe of a transaction (potentially several hours). Use of stablecoins can mitigate this.
Since you can’t get rid of tokens (unlike fiat currency), in the case of an economic contraction (where you now have a reducing amount of goods and services available to buy) then you end up with the ‘more money chasing too few goods’ situation that leads to inflation. So you can get inflation (and deflation) without government interference.
Crypto based money functions pretty much like an asset based currency like gold.
@gunker
What you’re talking about isn’t in any sense a currency. It’s just an accounts entry for the sum of fiat represented. So they fiddle the accounts? Those accounts are expressed in fiat. What crypto is supposed to get away from.
Ever get the feeling this isn’t going to end well?
@Agammamon
“in the case of an economic contraction (where you now have a reducing amount of goods and services available to buy) then you end up with the ‘more money chasing too few goods’ situation that leads to inflation. ”
Then the value of assets must decreasing, since it must be from the sale of assets the surplus money’s coming from. Still sums to zero.
And isn’t this what you’d rather prefer to happen. If the amount of goods being produced is less than demand you want to incentivise to produce more goods. That’s what the price rise is doing. You don’t want people tucking their money away by buying assets.
Or rather, you want people buying assets that produce goods. Not, for instance, houses.
I’ve come to think that relative prices of goods, services & assets are best decided by the decisions of people rather than governments. Since they make such monumental fuck ups doing so.
@BiS
What you’re talking about isn’t in any sense a currency. It’s just an accounts entry for the sum of fiat represented. So they fiddle the accounts? Those accounts are expressed in fiat. What crypto is supposed to get away from.
Exactly. Keeping your assets in Crypto avoids all that tedious KYC stuff that legitimate banks pull on your. Stablecoins where supposed to be Crypto but pegged to fiat (which was advertised as them holding the equal value in fiat).
@gunker
I can’t understand why anyone would want an interface between fiat money & a cryptocurrency. It defeats the object of the cryptocurrency.
@BiS
After your latest pump and dump scheme paid off, you want to get your money out and not leave it in crypto which may be someone else’s scam
There was a point when Far Eastern countries used silver currencies but China used mainly paper. Which was fine until the Emperor sent paper money to rulers elsewhere whom he looked upon as his subjects. They didn’t like it: they couldn’t think what to do with slips of paper if they had no current need to buy stuff in China.
Does that bear any resemblance to the current crypto imbroglio?
Hang on, this was a June 16th post. Woz up, Worstall?