Comment by dzink
5 months ago
(For those of us who remember what runs on a bank with your savings in it feel like) What if any protection is there, that you will be able to withdraw your money when a massive dunk in Bitcoin crashes a bunch of major holders and you want your savings back?
It's a good question - Stripe's Stablecoin Account documentation is good reference here (they denominate balances in USDB, one of these "custom stablecoins" from Bridge): https://docs.stripe.com/crypto/stablecoin-financial-accounts...
"It’s always backed one-to-one by the equivalent value of US dollars held in cash and short-duration money market funds at BlackRock."
So while there are other (potentially novel) sorts of counterparty risks - the backing is definitely more robust than (and pretty much entirely decoupled from) Bitcoin/the rest of the crypto sphere, and is closer to dropping funds off in a Fidelity money market.
Another good (early - 2023) read on this topic: "There are now two types of PayPal dollars, and one is better than the other " https://www.moneyness.ca/2023/09/there-are-now-two-types-of-...
Fairly sure money market funds have risks and carry interest (interest = risk).
People found that out the hard way in 2008.
This is correct and addressed with diversification. Is money is spread across multiple safe instruments your chances to get in trouble is minimal. If you do get in trouble then your exposure is small too.
Indeed, and good call out; one likely source of the "novel" counterparty risk I allude to (though really not even novel - "different" is probably the more reasonable word).
People who ask such questions aren't stupid enough to be in crypto.
It's easy to unravel the entirety of crypto:
Who is willing to spend any money for crypto? It's the same people who want to profit from reselling crypto at a higher price.
That's all there is to it. If you understand this, you also understand why the system eventually has to fail, leaving holders with trillions in losses that funded the profits people took out of the system.
I think there is plenty of counter-evidence in how this is being approached:
- The obvious: these are stablecoins, whose value is pegged to and 1:1 backed by fiat currency / is not capable of the cliche pump&dump dynamics of other crypto tokens.
- To the extent that (eg. today) they are coupled to a network like ETH or Solana (whose holders stand to gain) - both Stripe and Circle are building L1 blockchains right now whose native gas tokens are stablecoins, and are therefore also decoupled from any of the bagholder stuff. Merits of those chains aside: the big players want to further eliminate that dynamic and are putting their money where their mouth is.
- Stripe (and other legitimate fintechs) want to use stablecoins specifically because they legitimately make cross-border payments much easier, and because there is serious/earnest usage emerging. SWIFT actually does suck (not just to the cliche engineer-who-wants-better-APIs way, but even a banking professional would tell you), international payments are more unsolved than you think outside of a few fintechs who are basically just managing massive ledgers + a ton of liquidity around the world.
(In short: I think your take is something that may have made more sense 5-10 years ago, when Stripe themselves ditched crypto for the reasons that it didn't work for anything useful and was primarily a means of gambling)
Crypto was never gambling. It's a wealth redistribution scheme.
I don't trust stablecoins that are built on the same technology, by the same actors, and are then used to facilitate most of crypto's trading volume.
I am not convinced of their backing, and I think it likely that together with the crypto collapse stable coin issuers are going to fall like dominos too.
As for Stripe, they announced that their first customer for this is some Argentinian bike importer. We will see if it's that useful a tool in the future. It's not yet the case.
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Yeah - there's no real advantage to crypto, even less so for a stable coin (it really seems to be someone /trying/ to make crypto look legitimate, with absolutely no reason to buy.
Here's how a buyer of the coin should see it - I have 1 USD and I can put that money into a bank, into my pocket, or under my bed mattress.
If I buy a crypto stable coin.. I can hope that the coin doesn't fall over (as others have), and, uhhhh, that's about it.
The owner of the stable coin might be able to trade it with someone else, for goods or services, but the only reason either party would switch from the fiat currency to the crypto is to avoid regulation, whether that be because the goods/services are controlled, or because the transfer of money is controlled.
Any thought of "investing" the dollar into the "stable" coin is void, because it's a stable coin that's supposedly fixed to the value of the dollar, one goes in... one comes out
Payment of interest for holding the dollar, that's regulated, and the risk of the coin disappearing, or being shut down by the feds means that the reward would have to be high to make it worthwhile (IMO)
Cross border payments with stable coin is way easier and faster than with USD. When crypto is in a bull cycle demand for stable coins raise as short term interest, sometimes up to 50%/year (for a few hours or a day). Stable coins generate yield for their operators, they won’t run with your money due to the same reasons why a bank CEO won’t.
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You're asking the wrong questions. You're asking for regulation in a field that's actively working around regulation.
There are some real questions here. If you issue a "branded stablecoin", are you responsible if the company holding the reserves goes bust or is "hacked"? Probably. You're certain to be sued. Can't disclaim that liability. Can't be anonymous. See the new GENIUS Act [1].
[1] https://www.congress.gov/bill/119th-congress/senate-bill/158...