Comment by jqpabc123
4 months ago
How on earth is it possible they can cover a 1.5B loss?
Easy! They give Binance an IOU in exchange for 1.5 billion BUSD which is just "minted" out of fresh new electrons. Neither of them has really lost anything. Everyone can carry on as if it never happened.
In the bizarro world of crypto, this is business as usual.
Binance doesn't mint BUSD, BUSD is emitted by Paxos, which is an american licensed company.
I have a license to drive a car. Having it doesn't limit my ability to mint crypto.
https://www.dfs.ny.gov/consumers/alerts/Paxos_and_Binance
It was approved by the New York State Department of Financial Services (NYDFS).
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Gary Gensler called BUSD a security and banned it years go. What a guy!
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How it it different from what banks do? (Except for a central regulator.)
How it it different from what banks do? (Except for a central regulator.)
Your exception is the answer.
Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity.
The bizarro world of crypto has no such regulation and as a result, it is inherently unstable.
The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate.
Contradict and hypocrite much?
I saw a quote somewhere:
>Crypto is speedrunning the entire evolution of finance to end up at the same place
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They are being loaned ETH to cover withdrawals and prevent what would amount to a bank run, not stablecoins. This entire comment chain is stupid and pointless.
False. Money on your bank account is backed by bank's assets, not by the central regulator. Recommended reading: https://en.wikipedia.org/wiki/Fractional-reserve_banking , M1 money supply, etc.
> The only way to bring stability to the bizarro world of crypto is by tying it to "fiat"
False. It's possible to make stable-coins using just price oracle and collateral. "Fiat" is not necessary. E.g. https://www.liquity.org/bold
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Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so.
The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to.
What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily.
The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
> How it it different from what banks do?
I often read this sort of comment from crypto-defenders, but is it what banks do?
I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
That's because they're mistaken. In traditional banking only the central authority can print money, not the individual banks.
If someone stole a trillion dollars from JP Morgan, JP Morgan can't make themselves whole by creating a new trillion dollars.
The central authority might guarantee the customers of JP Morgan that their money is protected, but they won't print money to make the bank whole.
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Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation.
Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
Banks borrow from each other all the time. What do you think "overnight loans" is for? And when banks gives a loan that creates money
FEDS can print money while Binance does not
not exactly true - Binance is indeed "printing money", just with no centralized regulation. When the Feds do it the expectation is that they are aware of the long-term impacts of doing so, and include in their calculation. For crypto it's the opposite: do it before you erode trust & goodwill to the point where it's no longer valuable. I see it more like it is very different than printing money in a economy that's perceived as stable and quite similar to printing money in one where the people have no faith in the value of sovereign currency. So the crypo-promoters are right about the use-case in certain jurisdictions, but the problem is that's not where the wealth is, so they target rich economies that tend to have stable government currencies & established banking, and do not need crypto for legitimate tasks.
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