The critics have explained it clearly. The stablecoin companies are the ones deliberately creating the confusion because they are covering up their unsound financials.
Why do so many crypto critics pretend DAI doesn’t exist?
HN comments are 'worried' that Tether (and other Stable coins) injecting money into the bitcoin/crypto markets are artificially inflating prices and makes the whole thing a scam. Yet that's pattern is the underlying premise of Quantitative Easing that kept the stock market from crashing (or inflated the bubble depending on your point of view) for the past 2 years.
I'm open to a conclusion that both are a scam. I'm also open to a simple and understandable explanation for how these two approaches are fundamentally different from each other. But if someone's viewpoint is one approach is better then the other because a) USD has worked fine for USA up to this point or b) USD is back by USA govt and it's military, then i think they should realize that those are factors are not some unalienable truth that's guaranteed to continue forever. An anti-fragile system would consider hedging against them.
So yes, USD, Tether and my poker chips at home do share a fundamental characteristic of any method of exchange, a subjective belief about their worth that is ultimately decided by collective agreement. That does not mean they are anywhere close to the same thing, or scams.
> If there is a problem with a bank, there are several legal and financial consequences for everyone involved, enforced by the government.
What if that bank is the central bank? Which entity is responsible for judging the actions of that bank and deal out consequences if their actions cause more harm then good? And who would end up on the receiving end of those consequences (guessing not any individuals)? Time will tell if the doomsday folks (3 sigma bubble) are right or the mainstream folks (everything will go back to normal after a few interest rate hikes) are right but I'm pretty certain nobody will face meaningful consequences for being wrong.
The problem with unstable collateral is that it unwinds in market downturns, making the stable coin less useful when most needed
When crypto markets are volatile there's more demand to cash out of crypto and into a stable coin, but volatility is also when people take on the least amount of leverage meaning that it's also when there's the least amount of DAI available.
When crypto markets are not volatile, then the utility of a stable coin goes down and yet that's also when people assume the most amount of leverage and hence when the most amount of DAI is available.
The end result is that the incentives for DAI don't really work out all that well.
Matt Levine wrote a great article explaining how stablecoins could actually be too safe, and that concerns the Fed, possibly to the point of action [0]:
> A less obvious risk of stablecoins is that they might be too stable. A stablecoin is, among other things, a substitute for putting money in a bank. Banks are generally very safe places to put money, but they are not perfectly safe. There can be runs on banks; banks can fail. For most U.S. retail bank accounts this is not a very salient problem, since they are backed by government deposit insurance, but many large institutional pools of money (corporate cash accounts, money-market funds, etc.) park their money in short-term bank instruments and are sensitive to risk. If a bank gets riskier, it will lose deposits. And if a stablecoin is so stable that it is safer than a bank, then banks generally will lose deposits.
> Why is this a risk? Well, banks do useful stuff. Classically, they take people’s deposits and lend them out to other people to start businesses and buy homes. The provision of credit by banks helps the economy grow. More to the point, the withdrawal of credit by banks hurts the economy, and the risk here is wrong-way. If people get nervous about banks and pull out all their money to put it in safer stablecoins, then (1) that will probably happen at a time when the economy is shaky and (2) that will definitely make the economy shakier. The bulk of the response to the 2008 financial crisis involved preventing runs on banks, because those would have made all of the problems of the crisis much worse.
The critics are asking for something that's a little ridiculous and not in line with a) how banking works or b) accurate according to what the definitions of "attestation" and "audit" means in accounting.
[0] https://www.bloomberg.com/opinion/articles/2022-02-01/hedge-...