Stablecoins: Understanding Counterparty Risk(medium.com)
medium.com
Stablecoins: Understanding Counterparty Risk
https://medium.com/gemini/stablecoins-understanding-counterparty-risk-241d55f0b392
28 comments
> Blockchain is a Semantic Wasteland
Ironic that you would quote that article yet completely ignore its meaning in the rest of your comment?
Stablecoins are a superset of centralized voucher tokens like Tether.
Research into trustless price-stable cryptocurrencies is an ongoing effort, which realization will have a huge impact on the crypto ecosystem.
https://news.ycombinator.com/item?id=18287231
Price stability is as big a barrier to adoption as speed and end-user experience are. Discrediting or wilfully misleading the public on that point is harmful to the field as a whole.
Ironic that you would quote that article yet completely ignore its meaning in the rest of your comment?
Stablecoins are a superset of centralized voucher tokens like Tether.
Research into trustless price-stable cryptocurrencies is an ongoing effort, which realization will have a huge impact on the crypto ecosystem.
https://news.ycombinator.com/item?id=18287231
Price stability is as big a barrier to adoption as speed and end-user experience are. Discrediting or wilfully misleading the public on that point is harmful to the field as a whole.
Of all the things to work on in blockchain that are more interesting than an IOU coin, the best you could come up with was wallet UX and hardware wallet design?
I don't know what you mean by "in blockchain".
In the Bitcoin ecosystem and with most of its' offshoots, huge quantities of people are using centralized "wallet" software because the decentralized stuff doesn't scale and is too hard to use.
Hardware wallets are part of that. A cryptocurrency with high TPS could support NFC or similar payments on a HW wallet. Type in your amount, tap the terminal, done.
I think that large custodial companies like Coinbase and Gemini represent existential threats to Bitcoin.
In the Bitcoin ecosystem and with most of its' offshoots, huge quantities of people are using centralized "wallet" software because the decentralized stuff doesn't scale and is too hard to use.
Hardware wallets are part of that. A cryptocurrency with high TPS could support NFC or similar payments on a HW wallet. Type in your amount, tap the terminal, done.
I think that large custodial companies like Coinbase and Gemini represent existential threats to Bitcoin.
> Is that... fun?
No, but it is allegedly profitable!
No, but it is allegedly profitable!
Tether became a fundamental component of the crypto ecosystem by allowing crypto / fiat trades and price discovery without needing routine access to the legacy banking system. USDC, GUSD, etc. are trying to replace Tether by accomplishing the same thing without the baggage and distrust of Tether. There may be core risks of asset-backed stablecoins but compared with everything else in the ecosystem they are much more reliable.
I'm working on a stable coin project right now (unsurprisingly almost all of the time and costs are process and regulation).
And yeah, it relies on centralized trust for issuance, so it's hard to call it a "coin" in the same way bitcoin is, but I do believe it solves real problems.
There's a lot you can do with a collateralized-cryptographic-asset-on-a-distributed-ledger (or stablecoin) that you can't do with a bank account. For one thing, you can write your own wallet app that works however you want it. That would be like if all banks implemented the same standard, and you could use any app to control your accounts.
You can use it to do some interesting things, like write apps that require two-to-sign for certain types of transactions, or write a generic two-factor auth that works with any of these apps. You could write an arbitration service for settling disputes, or do actual (less than 10 cents) micro-transactions since the processing fees are fractions of a cent.
There's a lot of potential from letting programmers interact with the finance system more concretely, and that's the problem at least some of these stablecoins are trying to solve. Not Gemini, but over on the stellar network that's what we're working on.
And yeah, it relies on centralized trust for issuance, so it's hard to call it a "coin" in the same way bitcoin is, but I do believe it solves real problems.
There's a lot you can do with a collateralized-cryptographic-asset-on-a-distributed-ledger (or stablecoin) that you can't do with a bank account. For one thing, you can write your own wallet app that works however you want it. That would be like if all banks implemented the same standard, and you could use any app to control your accounts.
You can use it to do some interesting things, like write apps that require two-to-sign for certain types of transactions, or write a generic two-factor auth that works with any of these apps. You could write an arbitration service for settling disputes, or do actual (less than 10 cents) micro-transactions since the processing fees are fractions of a cent.
There's a lot of potential from letting programmers interact with the finance system more concretely, and that's the problem at least some of these stablecoins are trying to solve. Not Gemini, but over on the stellar network that's what we're working on.
Hmm.
So it seems to me that the value is primarily in pushing back the frontier of the interface with the legacy system, right?
If you can provide very high levels of likelihood that the issuer will not be shut down, it works.
I'm just not convinced this is practical.
KYC is _always_ going to be required at the interface (with the legacy system), which means the interface won't be used much, which I think makes providing proof that reasonable exchange for USD is possible very hard.
And if you push it back further and require KYC for every transaction - at that point it's PayPal with an API.
So it seems to me that the value is primarily in pushing back the frontier of the interface with the legacy system, right?
If you can provide very high levels of likelihood that the issuer will not be shut down, it works.
I'm just not convinced this is practical.
KYC is _always_ going to be required at the interface (with the legacy system), which means the interface won't be used much, which I think makes providing proof that reasonable exchange for USD is possible very hard.
And if you push it back further and require KYC for every transaction - at that point it's PayPal with an API.
>And if you push it back further and require KYC for every transaction - at that point it's PayPal with an API.
Not necessarily, the stellar compliance protocol allows firms to set up peering agreements and share KYC information. It would definitely require a shift in the KYC/AML laws to use the compliance protocol as your KYC. We're canada based, so the law may be different in your municipality.
Those kinds of peering agreements are how we can get a pseudo-decentralized KYC/AML layer, and "know who our customers transact with". We're not expecting to need KYC for every transaction at this time though.
Not necessarily, the stellar compliance protocol allows firms to set up peering agreements and share KYC information. It would definitely require a shift in the KYC/AML laws to use the compliance protocol as your KYC. We're canada based, so the law may be different in your municipality.
Those kinds of peering agreements are how we can get a pseudo-decentralized KYC/AML layer, and "know who our customers transact with". We're not expecting to need KYC for every transaction at this time though.
So is this a system people can actually use or just an internal settlement layer?
If I set up a Foo wallet, and sell some things, and have 10K Foo, and try to cash out 10K Foo, are you going to give me 10K USD, or are you going to ask for a transactional history of the funds (i.e. KYC per transaction)?
Basically, is it actually going to be realistic to exercise the cash-out functionality, or is it going to be a theoretical thing that end users in the cryptocurrency space don't actually use?
I suppose I have a bias here in that I don't find a non-fungible cryptocurrency useful. I think it's actually negative and creates more problems than it solves.
If I set up a Foo wallet, and sell some things, and have 10K Foo, and try to cash out 10K Foo, are you going to give me 10K USD, or are you going to ask for a transactional history of the funds (i.e. KYC per transaction)?
Basically, is it actually going to be realistic to exercise the cash-out functionality, or is it going to be a theoretical thing that end users in the cryptocurrency space don't actually use?
I suppose I have a bias here in that I don't find a non-fungible cryptocurrency useful. I think it's actually negative and creates more problems than it solves.
That's a question the lawyers are negotiating right now, but if we needed to "ask for a transactional history of the funds" our business model would be untenable.
We're getting into territory I'm not allowed to talk about now, but note that all the crypto-currency exchanges are operating under a similar "keyhole" principle, of only doing KYC at the withdrawal or deposit steps.
>Basically, is it actually going to be realistic to exercise the cash-out functionality, or is it going to be a theoretical thing that end users in the cryptocurrency space don't actually use?
If should be a realistic thing, where we have real regulations applied to us and real banking partners that aren't going to suddenly pull their support, and who know exactly what it is that we're doing.
Canada is a bit of a different market though.
We're getting into territory I'm not allowed to talk about now, but note that all the crypto-currency exchanges are operating under a similar "keyhole" principle, of only doing KYC at the withdrawal or deposit steps.
>Basically, is it actually going to be realistic to exercise the cash-out functionality, or is it going to be a theoretical thing that end users in the cryptocurrency space don't actually use?
If should be a realistic thing, where we have real regulations applied to us and real banking partners that aren't going to suddenly pull their support, and who know exactly what it is that we're doing.
Canada is a bit of a different market though.
I wish you the best of luck.
> There's a lot you can do with a collateralized-cryptographic-asset-on-a-distributed-ledger (or stablecoin) that you can't do with a bank account. (...) That would be like if all banks implemented the same standard, and you could use any app to control your accounts.
Sure, given universal adoption. In reality, it's more like an API that controls, charitably, one bank - why shouldn't people just use Stripe / Paypal / ...?
Sure, given universal adoption. In reality, it's more like an API that controls, charitably, one bank - why shouldn't people just use Stripe / Paypal / ...?
Well on the stellar network it includes a distributed exchange, so as long as the assets are on the stellar network you can pay out using `foo`, and they can receive payment in `bar`.
Err.. Stablecoins are stable, hence the definition.
https://github.com/jpantunes/awesome-cryptoeconomics#stablec...
That being said, there's a big difference between a pegged currency and an algorithmic stablecoin like the DAI or Bancor.
https://github.com/jpantunes/awesome-cryptoeconomics#stablec...
That being said, there's a big difference between a pegged currency and an algorithmic stablecoin like the DAI or Bancor.
Am I the only person who struggles with the idea of anything that's set at 1-to-1 with a single fiat currency being called 'stable'?
Certainly, USD is more stable than BTC or ETH, so a "stablecoin" pegged to it will share that increased stability. But that's more a question of prevailing economic conditions than anything, and there's nothing stopping a fiat-based coin from sharing in the inflation, deflation, or collapse of the pegged currency. Even if we assume the implementation of the currency perfect, you're just changing the set of things your currency is vulnerable to.
I wonder if anybody's working on a Stablecoin which tries to mitigate this using something like precious metals, or a pool of fiat currencies (with the understanding that something hitting USD hard might not hit CNY or EUR or GBP as hard, mediating the effect).
Certainly, USD is more stable than BTC or ETH, so a "stablecoin" pegged to it will share that increased stability. But that's more a question of prevailing economic conditions than anything, and there's nothing stopping a fiat-based coin from sharing in the inflation, deflation, or collapse of the pegged currency. Even if we assume the implementation of the currency perfect, you're just changing the set of things your currency is vulnerable to.
I wonder if anybody's working on a Stablecoin which tries to mitigate this using something like precious metals, or a pool of fiat currencies (with the understanding that something hitting USD hard might not hit CNY or EUR or GBP as hard, mediating the effect).
Yes to both. There are at least two gold-backed cryptocurrencies designed for a strict interpretation of Islamic Finance (HelloGold in Malaysia, OneGram in Dubai).
There is also a basket of 15 currencies plus gold, called Globcoin, though the balance of currencies, what currencies you could buy and sell Globcoins with, and relative share of each coin was difficult to interpret when I was looking into it.
There is also a basket of 15 currencies plus gold, called Globcoin, though the balance of currencies, what currencies you could buy and sell Globcoins with, and relative share of each coin was difficult to interpret when I was looking into it.
iirc, MakerDAO was originally going to peg itself to the IMF's SDR, which is a basket of multiple currencies regularly rebalanced to achieve "universal" stability[1].
They then decided to peg to the USD to please traders, who measure in USD. But I understand it's indeed a long term goal to peg to a more stable asset. The underlying mechanism should stay the same.
[1]: https://www.imf.org/external/np/exr/faq/sdrallocfaqs.htm
They then decided to peg to the USD to please traders, who measure in USD. But I understand it's indeed a long term goal to peg to a more stable asset. The underlying mechanism should stay the same.
[1]: https://www.imf.org/external/np/exr/faq/sdrallocfaqs.htm
This is why crypto is so attractive to libertarians.
It requires getting something for absolutely no effort and conflates economic growth with semantic labeling of abstract pseudo academia aimed at the very people whom they are trying to steal money from.
Somebody needs to put together a "Wall of Shame". History will teach us as this period as a "Dark Period" where financial scammers flourished with the help of Russia to launder the very money they took from their people.
It requires getting something for absolutely no effort and conflates economic growth with semantic labeling of abstract pseudo academia aimed at the very people whom they are trying to steal money from.
Somebody needs to put together a "Wall of Shame". History will teach us as this period as a "Dark Period" where financial scammers flourished with the help of Russia to launder the very money they took from their people.
Libertarian; I think that word doesn't mean what you think it means...
There are many problems with cryptocurrencies in general, and "stablecoins" in particular, but this illuminates none of them.
One problem is that the word "stable" in stablecoin conflates two separate concepts; the value-stability of the underlying reference commodity basket, and the stability of the units of the currency vs. the defined commodity basket. These are separate concerns with separate feedback/control loops, and any "stablecoin" that doesn't reflect that is doomed to failure. Users who expect value-stability of the commodity basket in terms of other value references will be especially disappointed; no "stablecoin" I am aware of claims to deliver that.
I'm also pretty sure that "libertarians" don't expect others to magically give them such things.
There are many problems with cryptocurrencies in general, and "stablecoins" in particular, but this illuminates none of them.
One problem is that the word "stable" in stablecoin conflates two separate concepts; the value-stability of the underlying reference commodity basket, and the stability of the units of the currency vs. the defined commodity basket. These are separate concerns with separate feedback/control loops, and any "stablecoin" that doesn't reflect that is doomed to failure. Users who expect value-stability of the commodity basket in terms of other value references will be especially disappointed; no "stablecoin" I am aware of claims to deliver that.
I'm also pretty sure that "libertarians" don't expect others to magically give them such things.
I can't understand anything here. Why would "getting something for absolutely no effort" be attractive to a libertarian? Isn't that more of a left-wing ideal of redistributive societies, where you receive resources regardless of your economic output?
The future of cryptocurrency seems like this-
>Bitcoin is digital gold, even if economists hate it. Humans around the world started believing in a deflationary currency.
>Centralized non-stable coins took advantage of noobs that didn't understand the purpose of blockchain was to be decentralized.
>Smart coins failed to scale, and might be seeing their end. POS and DAG are untested solutions that might provide a future, but it will be years before people trust it.
>Stable coins are centralized, but provide the ability to transfer assets with limited costs. These will require centralization
>Fast/cheap/privacy coins are looking to beat bitcoin at moving money.
That said, just because a crypto is useful, doesnt mean that it will grow in value. The value may be using the coin rather than holding the coin.
>Bitcoin is digital gold, even if economists hate it. Humans around the world started believing in a deflationary currency.
>Centralized non-stable coins took advantage of noobs that didn't understand the purpose of blockchain was to be decentralized.
>Smart coins failed to scale, and might be seeing their end. POS and DAG are untested solutions that might provide a future, but it will be years before people trust it.
>Stable coins are centralized, but provide the ability to transfer assets with limited costs. These will require centralization
>Fast/cheap/privacy coins are looking to beat bitcoin at moving money.
That said, just because a crypto is useful, doesnt mean that it will grow in value. The value may be using the coin rather than holding the coin.
> just because a crypto is useful
What's it useful for?
What's it useful for?
Peer to peer censorship resistant electronic cash.
Moving value on the internet without a potentially compromised central party
Moving value on the internet without a potentially compromised central party
I dont believe its useful for apps, but I do find it useful for moving money.
To clarify, I only like Bitcoin so far.
I'm currently building a token that is tied to an Index Fund. It will not use blockchain technology.
To clarify, I only like Bitcoin so far.
I'm currently building a token that is tied to an Index Fund. It will not use blockchain technology.
"Stable coins" should be called "Oracle problem." How are you dealing with the oracle problem with your token?
It isnt decentralized, this is a feature that allows
>Hidden transactions
>No txn fees
>Anonymous usernames
And the obvious benefit that you own an index fund instead of USD.
>Hidden transactions
>No txn fees
>Anonymous usernames
And the obvious benefit that you own an index fund instead of USD.
At the moment, I'd rather hold dollars.
You didn't answer the question; there is still an oracle problem. How do I know you're holding a unit of the index fund for each token? I have a pretty good idea my broker will, as he'll go to jail if he gets caught short. That's usually right, but then we have clowns like Jon Corzine who get away with it because they're more equal than others.
The other stuff can be done with a permissioned blockchain; if you can adequately solve the oracle problem, you'd have something pretty interesting. If you don't, you're an unregulated broker who uses Chaumian tokens.
You didn't answer the question; there is still an oracle problem. How do I know you're holding a unit of the index fund for each token? I have a pretty good idea my broker will, as he'll go to jail if he gets caught short. That's usually right, but then we have clowns like Jon Corzine who get away with it because they're more equal than others.
The other stuff can be done with a permissioned blockchain; if you can adequately solve the oracle problem, you'd have something pretty interesting. If you don't, you're an unregulated broker who uses Chaumian tokens.
Stablecoins are not stable (they cannot be due to counterparty risk) or coins (centralized trust).
There are actual problems that need to be solved in the space.
You could be working on research into scaling trustless systems; into UX design for trustless wallets; better hardware wallet design; and so on and so forth.
Instead, you've created a crappy inefficient form of the US Dollar and you're pumping it to make money in trading fees.
Is that... fun?