One way to look at BTC (and friends) is as a kind of financial <i>heat pump</i>, except moving money instead of heat.<p>As with the traditional heat pump there is a <i>working fluid</i> - the coins. These coins have a price (in dollars) - this is their <i>temperature</i>.<p>The market is cycled just as a heat pump, with the working fluid being squeezed by buying pressure to raise the price, then released by selling to reduce the price and start the cycle again.<p>By controlling the cycle (e.g. by printing USDT out of thin air), the scammers ensure that the marks are buying in when the price is high, because they believe it will continue rising, and sell when the price is low, because they fear a further drop. Thus money is pumped from the marks to the scammers.<p>MOON->FOMO->HODL->DUMP->MOON-><p>MOON - scammers buy in to start raising the price. Early marks start entering and the scammers can reduce their buying as the price takes off.<p>FOMO - late marks come in wanting some of the action. Scammers are now shifting to selling, with max selling as the top is reached and marks buying power becomes exhausted.<p>HODL - price is dipping, scammers still are selling, but marks are holding expecting prices to recover.<p>DUMP - heavy price falls are now frightening the marks, who start closing their positions. Scammers are quietly hoovering up the excess, and gradually put a floor to the price.<p>Repeat.<p>Note that the scammers coin holdings are conserved across the whole cycle - but because of the price differential between their buying and selling phases, they make a profit over that cycle.<p>BTC has gone through 2 such cycles in the last year or two, maybe it is just entering the MOON phase again now?
The first author left the Federal Reserve right after this paper to lead research at a crypto exchange:<p><a href="https://twitter.com/gordonliao/status/1484605701435523072" rel="nofollow">https://twitter.com/gordonliao/status/1484605701435523072</a>
I'm confused why the comments here aren't more critical of stablecoins. A stablecoin is just a bank deposit without an interest rate, and with very little in the way of regulation over what the issuer does with the cash that has been deposited. Without some other mechanism, they wouldn't exist except as a novelty.<p>The question must become "what is the other mechanism?". In the case of Tether, which has the largest market cap of any stablecoin, as far as I know, the scam is this. If I want to have liquidity on Bitfinex, I need to go buy tethers. If I try to make a transaction for bitcoins with dollars on the exchange, it could take days to process. There's no particular reason for this, You're just trading shares of a large wallet. So I must first go buy some tether from bitfinex, but wait, USD to Tether liquidity is also artifically capped. If I try to buy tether for dollars, it can also take days.<p>It follows that the only way to obtain liquidity on one of these exchanges is to buy and <i>hold</i> stablecoins. This is the premise upon which the exchanges that print these currencies can then turn around and lend the dollars used to buy them.<p>If you discovered, suddenly, that a casino had 78 billion dollars in chips just floating around, you would rightly wonder what the hell was going on, although the explanation would likely be different.<p>Tether is not a cryptocurrency, it's a casino chip. An escrow account that the bank is illegally investing in risky securities, entirely for the profit of its executives, investment in which is entirely funded by manipulating access to the wider crypto market.
I'm not really an expert on anything crypto, but I very much like the idea of stablecoins as a realistic bridge between the traditional financial system and cryptocurrency technologies.
Honestly I think it's both understandable and sad how aggressive people have gotten about trying to get organizations to "prove" they're adequately backing their stablecoins with cash reserves. It feels like a fundamental misunderstanding that arises from layperson terms vs. legal/accounting terms.<p>Attestations vs. audits, what purpose each one serves in an accounting sense, and why an organization would opt for one over another; these are conversations I don't see being had, but conversations that, I think, would clear a lot of the frustration and confusion up, on the part of the skeptics.
Honest question: how many hackernews people are cool with all their purchases being on a blockchain forever that is accessible ad infinitum to whichever party has access to it (and potentially all of the public) ?
Can someone explain how a stablecoin is different from the fiat it's backed by, other than the name?<p>Like why can't/shouldn't the government claim that a USD "coin" is just another name for... USD? And therefore maintaining a balance or reserve of it is equivalent to maintaining a bank account? (edit: or maybe I should say "fiat deposit account", which may not be FDIC insured)
I'm actually pretty worried about a fed coin. I can see it being a big win or a big loss to Americans and citizens of other countries. The big potential downside I see is that a digital currency can be easily tracked (blockchain or not blockchain, this is possible). Every bitcoin transaction is recorded, with a full history, and we can identify from who to whom (assuming we know who owns a wallet address, which I think is expected here). On the other hand, if a digital currency is using ZKPs then it would be a big win for privacy because it would be like digital cash. But I'm under the impression that this is unlikely to happen. There's questions about how we'd track things like taxes and for some reason the answer of "the same way we do now and the same way we did before digital money" isn't sufficient. I even see this as a win if there's a flat consumption tax (gas). But I almost never see this discussion taking place. So I'm curious what other HN users think. This seems like a nuanced distinction that I don't think anyone that isn't tech literate would even be aware of.
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> Additionally, dollar-pegged stablecoins backed by adequately safe and liquid collateral can potentially serve as a digital safe haven currency during periods of crypto market distress.<p>That's the Federal Reserve being themselves. Buy US dollars, use US dollars as the global currency. It makes a lot of sense for the USA, not necessarily for the rest of the world. But the Federal Reserve represents it's country interest, so it makes sense.
> As commercial banks engage in fractional-reserve banking with stablecoin deposits, their balance sheet expands with expansions in credit and security holdings accounting for most of the expansion. The central bank shrinks its balance sheet on the net, as reserves increase slightly while cash liabilities decrease significantly. Households accumulate more assets, funded by the expansion in bank loans.<p>This is basically saying everyone can get more money because the Fed is less bound by its cash liabilities. This could allow them more direct control over the money supply which is less tied to physical cash deposits. Cautiously optimistic here but this seems like a good thing overall.<p>One problem scenario: banks invest more with larger balance sheets. What if those investments fail? Now they have liabilities for their deposits which are backed by stable coins which, in turn, are backed by the Fed, which has slightly more cash than before (due to households replacing cash with stable coins) but likely not enough to cover the difference. Could this be a problem or would the Fed simply print more stable coins?
Stablecoins are a vital part of decentralized exchanges (DEXs). Since there is no central party running the exchange, it is impossible to store or account for a FIAT money. With stables, you can pull out of crypto on a DEX and hold some (virtual) inflationary FIAT with very low slippage and fees. You're free to re-enter at a later time, or swap 1:1 for FIAT on a CEX.<p>Stables have the transferability properties of crypto (borderless, fast, no counter-party risk) without the downside of the erratic price fluctuations. A common critique of crypto is that it's too volatile to be paid in, or spent day-to-day, which is fair. Stables solve that mostly.<p>Other issues with backing/reserves and who is getting rich off the interest are important but I feel that stables are a valuable piece of the financial space and I hope they can be regulated lightly to eliminate some of those black-box characteristics.
Any stablecoins pegged to the dollar are loosing value at all times due to inflation. During normal times its ~2% annually, but right now it's much worse than that of course. I appreciate the idea of stablecoins and they certainly have a utility value in higher stability, but I can't envision any circumstance one would want to hodl a large amount of stablecoins as an asset.<p>[Edit]
And now that I've actually read some of the paper it makes sense the Fed would be ok with backing some stablecoins with reserves. It provides the government a way to get a taste of an invisible tax on it via inflation (as all stablecoins are exposed to inflation).<p>Another angle I had not fully comprehended before is the governments complaint that stablecoins are only fractionally backed. While the reserve system is obviously a fractional reserve system, crypto represents solely the cash component of that system just as the US dollar does. Crypto does not represent a reserve split circuit money system. So, in order for crypto to operate as a fractional reserve it is doing something distinct (and a little more dangerous) from our current reserve system and hence why crypto is getting heat for this behavior.<p>And of course any currency system operating freely outside of the reserve system is a challenge to the Fed's authority so there will naturally be pressure to get crypto tied in somehow. The Fed's other paper released this month with the open call for CBDC feedback would seem to tie nicely into this one. In that paper they quickly realized that they needed to take over that last 10% of the US population that don't use banking services in order to successfully kill off cash. The other branch of that problem they did not discuss in that paper is tying crypto into the reserve system.<p>We're doomed the moment Congress blesses the Fed with the legal authority to issue CBDC backed by reserves. It's coming.<p><a href="https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf" rel="nofollow">https://www.federalreserve.gov/publications/files/money-and-...</a><p><a href="https://headlineusa.com/bank-of-international-settlements-chief-talks-absolute-control/" rel="nofollow">https://headlineusa.com/bank-of-international-settlements-ch...</a>
speaking of stablecoins, I remember reading a few years ago that Tether (USDT) was surely a huge bubble waiting to pop because they couldn't possibly have enough liquid USD to cover their issued coins. Whatever happened to that story, is it basically the same situation today?
The grail of crypto is syntetic anonymous stablecoins which will free everyone from the games of the people in power, but the backed by fiat centralized stablecoins will be used by governments and banks to further their control over people.
This is a great paper.<p>Its basically saying "wow DeFi is amazing".<p>at this point I'm not sure who else other people need to hear it from, but let's see.
What I don’t get is if stable coins aren’t backed by dollars somewhere, and their market cap is billions of dollars, and those stable coins are exchanged for actual dollars,<p>did we not just print billions of extra dollars out of thin air…?<p>Surely that must have some impact on inflation or the world economy in some sense
It seems disingenuous to host papers on FederalReserve.gov on a topic that already undergoes a great deal of inauthentic marketing. It <i>seems</i> like the Fed lending credibility to private enterprises that may not have as altruistic of intentions as the Fed.