First, what is being created here is a shadow banking system. The promise is that these so-called coins are “backed” by assets such as US Treasury bonds. However, those bonds often yield low returns in real terms. The temptation, as Tirole notes, is in that case to chase higher returns to increase profits, and that, inevitably, means riskier assets. Once that happens, the promise of stability disappears. A single shock could, in that case, unravel the whole edifice in Tirole’s opinion, as I have been saying for some time. That risk is real.
Back when interest rates were 1%, 0.5% and the like this was a real concern, yes. Now they’re 4 and 5%. A stablecon pays no interest to holders. It receives that 4 or 5% on Treasuries. Most profitable business in the world at present in fact.
Sigh.
Have I understood this correctly? Stablecoin pays no interest, issuer profits from interest on US bonds. Issuer gets 100% of profit, stablecoin owner exposed to depreciation by inflation.
Just like money then, only more so.
>like money
The point of these things isn’t really as an investment, it’s more as a “current account” for whatever-coins. It’s much easier to exchange [volatile] whatevercoins for an [ostensibly-non-volatile] stablecoin than it is to get someone to buy them with currency then store that currency somewhere.
So if you habitually trade shitcoins, and want to take a day off without your capital evaporating, you can exchange all the shitcoins into a stablecoin, then exchange back when you’re ready to sit down and start day-trading again.
Whenever he talks about crypto he entirely misses that the whole point and founding ethos was to create money that can’t be controlled, stolen or inflated away by crazed control freaks like the potato who is never further than 5 feet away from a money printer
It should be noted that that’s not what happens in practice though, because the hard reality that is that “coins” are a fiat commodity, so everything you can do to/with a fiat currency you can do to coins too.
For example, if there’s more buy-in to the idea that someone’s money should be taken away and redistributed because they don’t “deserve” it, then that’s what can happen:
https://help.coinbase.com/en/coinbase/getting-started/crypto-education/eth-hard-fork
Or if a government gets properly serious about making illegal coins that aren’t on some kind of dollar-standard so they can enact policy on the currency they have to be backed by, it doesn’t matter that a small percentage of people are prepared to break the law and use a coin that isn’t, because its fiat value will be torpedoed by the idea that the government/tax-man will definitely find out and might put you in prison.
I don’t know if there’s any way round this issue, but my gut feeling is that there isn’t, because:
– fiat coins will always be beholden to having to inspire fiat confidence
– whatever a convertible coins converts to will always be able to be regulated
[> that’s an oversimplification of what happened in this case, it’s okay to confiscate a bunch of money from a thief/fraudster/hacker and give it back to the victims/rubes
As Sir Terry wrote, “Once you had a good excuse, you opened the door to bad excuses.”. The principle has been established: the hard rules of the cryptocurrency algorithm take a back-seat to it being a fiat commodity and only having value if people collectively value it.]
In the interim this was interesting. MMT finally (one hopes) getting exposed as nonsense. I’m looking forward to the finding the Markets know more than Spud…
https://finance.yahoo.com/news/uk-30-bond-yields-climb-081334889.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAMAAtZnRhaGSH2LOHfDrX7BkkTSMiITyUP3yo03r5A9HqqsdPX2eVSnOSnPdLfags3pCvKlY6M2zRoILiwtVM0TenjOu9t85_3PwNlUHolf7HjhbQHats4gW2SR-C3tSZiGi1yihzMJsKmrNd5UrDJ1WLsKYdAnSojzzJse4Rlpa
Stablecon. Freudian Slip.
He doesn’t even know what a stablecoin is for?
Its not an investment, its a vehicle to make trading in more valuable but more volatile (and slower) currencies convenient.
Unless you do a lot of crypto trading you don’t hold a lot of stable coin and if you don’t do any trading you have no need for it.
The promise is that these so-called coins are “backed” by assets such as US Treasury bonds. However, those bonds often yield low returns in real terms.
I thought His Spuditude wanted to force pension funds to “invest” in “green” government bonds that would yield less than the current investments do.