UST “Stablecoin” at $.43
coinmarketcap.com
coinmarketcap.com
I just removed my last asset there. I'll be eternally grateful to them. I didn't have good job prospects as a fresh engineer from a collapsing economy. They really had an use for an arbitrageur, I took notice and without asking any permission or having any knowledge or experience I was helping all these different markets there not falling off price, and perhaps I have a roof over my head thanks to that. I'm finally going to sleep since yesterday. I guess it's time to get a job, I just need to recover mentally.
Some individuals put all their savings (or more) into crypto. Those early enough might have fared well, some of them extremely well. But it is not a miraculous value creating machine, but only a redistribution machine. For everyone that has done well, others have lost.
The other cost is the massive amount of time and effort so many people sink into this that could have been spent on more productive things.
So, Revenue is $0 (sure there are intra-island transfers where some crypto-corp buys services from some other crypto-corp).
However, crytpoland has plenty of costs. Electricity, exorbitant salaries, lambos, parties, marketing, compute, capital (servers, gpus). I'd even say to the tune of Billions of $$$. Now they have an additional cost, Interest
So, someone has to fund cryptoland of these $Billion expense, Where does the money come from? Investors, Big and Small.
A single BTC transaction pays the miners over $100 in seignorage/mining reward (increasing the money supply, around 1.7% p.a. until the next halving), of which around up to half, AFAIK, goes into electricity and mining equipment. Would love to see a good breakdown on that.
No matter what, at the end of the day you were working on code that had a direct impact on billions of dollars.
Also i imagine after a year you have rust, COSM WASM, & Auditing experience. You participated in a historic event that will be talked about for years to come.
An algorithmic stablecoin is still a dream that needs to be achieved in a crosschain enviroment and this failure will not deter hackers from trying again in the future.
(Genuinely!, in case I needed to add that, I know HN can be unfriendly toward cryptocurrency.)
But it does sum up the multitude of flaws in crypto literally playing with people's money.
Fyi, move fast and break things shouldn't be applicable when you handle customer deposits/lifesavings.
Best of luck. I hope you will find a stable career.
I see what you did there, and laughed. I took a hit but now think of nothing but moving on. Thank you. I agree with the sentiment, but take a more free-market stance of allowing these things to fail, the worst part is a lot of people don't understand where they're putting their savings at all and that's not exclusive to crypto. Lack of transparency is unacceptable, but unfortunately very common.
I normally agree with free-market approach, but not with people's savings on the line ;)
The sentiment is real though. You could be me when I was 10 years younger ;). We've almost all been through something similar.
https://www.bloomberg.com/opinion/articles/2022-05-10/anothe...
The biggest AFAIK is still Maker/DAI which is orderly unwinding at the moment:
https://coinmarketcap.com/currencies/maker/
https://coinmarketcap.com/currencies/multi-collateral-dai/
(Click one year and market cap to see the unwinding.)
Algorithmic stables are vulnerable to things like what happened to ust because the coin basket has to be balanced always, DAI tends to be more or less stable because it has a big part of its reserves in USDC so its more like a wrapped USDC with a little ETH.
The more damaged ones were people who felt attracted for the completely unrealistic 20% interest.
However, this absolute dump was coordinated by big funds, they saw they could borrow and dump whatever, nobody would save the peg.
> this absolute dump was coordinated by big funds
Really? Because people have been talking about the reserve to pay out the promised interest falling away for some time now.
Sorry you can't say USDT and "more or less audited" in the same sentence. Literally un-audited. It's an empty vault in the Bahamas lol. [1]
Institutionalized stable would be a better description of USDT.
The issue is algorithmic and partially-collateralized stable coins are all, each and every one of them, vulnerable to attack. They purport to be $1, but you know fundamentally they are not. Therefore you can attack the peg and walk away with boatloads of money. This is actually how Soros made his money - he broke the GBP when it was pegged. [2] It's much easier to break these pseudo-dollars since the market is unregulated, you can do whatever you want, and they're small potatoes in the world of tradfi.
[edit] This is a great listen on the whole thing. [3]
[1] https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
[2] https://www.investopedia.com/ask/answers/08/george-soros-ban...
[3] https://cryptocriticscorner.com/2022/05/04/episode-71-terra-...
Theoretically you can purchase synthetic stocks, tokenized real estate, other stablecoins. No one has tried it yet tho.
The problem is getting people to trust the underlying collateral. Also, you can take the Dai approach and be over collateralized. Dai is at 150%, instead of trying to maintain parity.
"The order further finds that Tether and Bitfinex’s combined assets included funds held by third-parties, including at least 29 arrangements that were not documented through any agreement or contract, and that Tether transferred Tether reserve funds to Bitfinex, including when Bitfinex needed help responding to a “liquidity crisis.”"
DAI requires 150% collateral in a currency completely outside the system that it can't burn or mint.
It is a big difference.
edit: UST is going to be collateralized in the future if it survives this https://twitter.com/stablekwon/status/1524331190995484672
And they are both run by algorithms.
What makes people trust a currency is who is controlling it. In the case of some cryptocurrencies that answer may be "people who contribute processing power". For USD that is "the US government", and for miscellaneous virtual currencies it may be some company who manages it in spreadsheet...
Think of prisoners using cigarettes for currency - it's not necessary for the tobacco companies to be involved or even care.
Sounds like the peg was more-or-less a perpetual motion device that relied on a strong wind
Loose monetary policy caused the crash.
What caused the 2008 crash was nothing to do with loose monetary policy. If you recall, that began in earnest after, and in response to, the crash.
It was loose regulatory policy. In no small part that Clinton rolled back Glass-Steagall in 1999. [1] Toxic mortgage-backed CDOs didn't have to become a systemic risk in the first place. There were a lot of contributing factors, but low interest rates weren't really top 10.
[1] https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the...
The problem had nothing to do with CDOs. No matter how you slice and dice risk, you never increase/decrease it. Someone would have owned the underlying MBS.
The issue was that the Blue Dog Democrats in the 90s decided with Alan Greenspan that homeownership should be incentivized. This created a housing bubble which ultimately is what caused the GFC.
The mechanism by which they turned garbage mortgages into AAA was 1) tranching, ie having junior and senior tranches, and 2) the assumption of low correlation (not all borrowers will run into trouble simultaneously).
Arguably, here we have something equivalent to the assumption of low correlation: if a few people here or there dump UST, you can indeed maintain the peg by issuing LUNA against it. But if many people simultaneously do it, then the whole edifice collapses.
Even the junior tranches eventually paid. They just weren’t liquid like other AAA assets (namely, Treasuries) in a crisis. The ratings described the tranches mostly accurately in terms of payout probabilities. Not in terms of liquidity.
The correlation assumption is common to these two. But…
> we have something equivalent to the assumption of low correlation: if a few people here or there dump UST, you can indeed maintain the peg by issuing LUNA against it
LUNA and UST were simultaneously issued by the same system. They are fundamentally correlated in a way even American mortgages are not. If the bandwidth of arbitrageurs is broken, the peg fundamentally fails. While one mortgage not paying increases the risk of another not paying, it doesn’t directly cause it in the way we see here.
Also, holders of junk mortgages still got a deed of real property against their loan. What will most Terra/Luna holders get?
Yes. I think that a big contributor to the crisis was that everyone knew that there was some loss on under-water-real-estate, but due to the complicated nature of the traded products nobody knew where those losses would manifest, and thus trust collapsed across the board.
I'm not sure what if anything they have left elsewhere to try to prop this up. But if they deployed all those reserves yesterday to get it back to $0.91-ish then I don't see how they recover it again.
> - spread around some fud about peg and bank runs
> - dumped the fuck out of their $3bn $btc on market to trigger wider panic
I'm sorry, but this is deep in /r/wallstreetbets conspiracy territory. The Occam's razor explanation is that the infinite 20% returns Luna/Anchor Ponzi is actually collapsing and that's what's triggering the runs.
It was always going to blow up though so it is possible this was just a coincidence and all it needed was slightly less liquidity to trigger the run.
:-D
Notice that all algorithmic stable coins essentially work the same way - the coin is issued against another coin acting as collateral. A fall in the value of the collateral will cause forced selling to buy back the stable coin.
They do also work the other way; pumping the value of the collateral as the stable coin can be used to bid up the collateral.
Creating an inherently unstable system that don't really need a conspiracy theory to explain why it will eventually collapse.
Looks like some people have.
If UST starts to lose value, buy pressure is created because someone could buy 100 of them at (say) $39 and immediately convert to $100 of Luna. If it starts to rise, say to $1.10, you use Luna to convert to UST at a discount and then sell it to turn a profit. There were multiple other mechanisms to this, including one that involved staking your UST for interest and getting Anchor tokens, so that others could take loans. Anchor would give a 20% interest rate(!) and then there was something about loan defaults and buying collateral at a discount and ...
Massively complex, and one of those things that works fine, until one day it doesn't.
And I don't believe you would be wrong! It looks almost purposely designed to blind the casual investigator with complexity and buzzwords, while luring them in with the promise of m4d g41nz.
What's the issue with scrutinisation?
The community at large has awful factions, but a portion of this tech will be normalized sooner than we hope.
I mean the USD is not stable either by definition, but there's more checks and balances there and your $1000 won't halve in value overnight except in extreme situations like the world shutting you off of the international financial system for invading a neighbouring country.
This is separate from the issues facing stablecoins. I'm reminded of the British government's failed attempt to maintain a "stablepound" against the "stablemark", in the proto-stablecoin mechanism known as the ERM. https://en.wikipedia.org/wiki/Black_Wednesday
Many of the same features are there. Spend the reserves! Increase the interest rates! Ultimately they had to de-peg.
The person on the other side of that trade? George Soros. Yes, really.
[1] https://old.reddit.com/r/terraluna/comments/un0fni/for_those...
People killing themselves because of financial losses that could have been prevented had some prior regulations had been in place does not look good for those institutions I mentioned (SEC and the others). Or maybe the people at those institutions (and the people supporting the people at those institutions) just don't care anymore about this type of events and about how it reflects on the whole "ecosystem".
Let's not forget the massive Madoff ponzi scheme in a highly regulated space...
https://en.wikipedia.org/wiki/Recovery_of_funds_from_the_Mad...
I have the opinion that a higher likelihood of getting caught and facing prison would be more effective than regulators that can sometimes be easily tricked for years.
Also, anyone find it sus that these massive selloffs are happening exactly in the middle of the night for the US east coast?
Not in the slightest. Time zones exist and it only goes to show that maybe a lot of tokens have been held oversea. The (crypto-) world doesn't just consist of the US, let alone the US east coast. If some (institutional) investors in Europe or Asia decided to liquidate their assets, that's exactly what you'd expect.
Not totally.
Algorithmic stablecoins have two equilibria: 0 and 1. Zero is presumably permanent. Small dislocations from 1 are fixable, but require arbitrage bandwidth. That bandwidth has a limit that varies based on participation.
Considering this, it’s almost expected that the peg would break more violently when most arbitrageurs are asleep. And given a single unfixed deviation from 1 pushes the system to 0, and given zero is a permanent outcome, one would expect the long-run value of the system to be zero while governed by these rules. (Hence the push to accumulate unconnected reserves.)
You may wish to avoid KYC/AML rules, you may want to avoid potential taxes incurred when changing to and from real currency, the exchange may wish to avoid reporting requirements too. You may wish to transfer large-ish sums around between exchanges without any traditional authorities being involved, and in a way that doesn't expose you to volatility.
More cynically, exchanges may or may not be able to get these stable-currency tokens (and this is more of a tether concern than UST) at a significant discount compared to real currency, or the exchange may wish to invent currency-like instruments that can be used on its platform without the need to hold real currency reserves.
Broke: Transfer $1000US to exchange. Wait 3 days. Buy. Sell. Want to buy another coin. Need a new exchange. Withdraw. Wait 3 days. Send to new exchange. Wait 3 days. Buy new coin. Pay income tax. Send passport photos to anonymous stranger.
Woke: Transfer $1000US to exchange. Wait 2 days. Buy tether. Buy sell wrapped instruments on different chains using smart contracts NOT exchanges. Never wait for traditional finance. No KYC from strangers in foreign places. No income tax!
Satire some, but true.
TLDR: Smoother gambling.
Now if you transfer on a Tuesday and the bank is closed on Wednesdays - tough luck, they're allowed to take till Thursday.
But there's always the option of doing an "instant" transfer if you're willing to pay extra.
They take about thirty minutes (Fedwire), given banks’ antifraud procedures. That said, I can wire moderate amounts (generally, less than $25,000) in seconds to known counterparties. There are also P2P rails like Venmo for small, instant transfers, though that’s a gross settlement system.
What if 10% of the people decide to do that?
What if it turns out that the number of $$$ that Tether actually has is much smaller than the number they imply that they have?
Unless you have tender in your hands, or a fedwire account, you don't actually have 'real currency'.
Sending USDT to my friends and family instead of USD allows me to give them money without the implicit tax, while having an exchange rate that's simpler to understand and not doesn't risk crashes like Bitcoin.
> and not doesn't risk crashes
are you intentionally writing !(!(riskcrash(bitcoin)))?
Because if that is what you wanted to say then I agree with you, but if you really wanted to say "doesn't risk a crash in value like bitcoin exposes me to" you do realize that that is simply untrue because no one knows the financial basis of Tether? Which means that at any moment it might go to 0?
Keep in mind the local currency (which is the only legal way to save money) dropped 97.8% compared to USD since the block started.
Would that have something to do with a recent war by any chance?
The latest version of foreign currency restrictions has been on the books since 2019, so it's mostly about the government systemically being shit.
So using stablecoins is a way of securing volatile crytpo assets for any period of time, while not having to pay taxes immediately (only when you decide to convert to fiat)
Of course this makes sense only if the stablecoin is actually stable ...
I will add that in some EU countries you are not taxed at all (assuming this is not your day job), even when converting to fiat ! Portugal, Belgium and Germany. Also Switzerland (not in EU)
- you believe they might increase in value or at least hold their value relative to other currencies.
- you need them for something (e.g. because you need to spend some) and you trust they won't decrease in value short term.
With any coin, as soon as you break that trust it becomes a problem. This coin is no different than Argentina pegging their currency to the dollar back in the day. Didn't work out either because their economy was still bad and they had to walk back their promises regarding that value. As soon as people stopped believing their coin was worth 1 dollar, it devalued by a lot. There are plenty of examples of 'real' currencies running into issues with their valuation. The Venezuelan currency was at some point cheaper than toilet paper by weight, for example. Happens all the time. Real currencies can be as unstable or even less stable than the shittiest crypto coin.
Ultimately the problem with a lot of these stable coins is a lack of regulation and mandatory reserves combined with dodgy market making magic bots that may or may not work as advertised. This one clearly did not keep up and now the reserves are gone and the trust as well.
Obviously tether and friends won't go down this path right?
https://tether.to/en/transparency/#reports
Edit: I falsely claimed they were alternating firms, but it turns out it was just a name change recently. That is my bad.
You can read all about it in the NYAG case
Edit: to reply your edit, there was no recent name change. Tether really really wants to give the impression they’re audited, but they have never done one
It’s not just a name change. The purpose of the attestations is to create the illusion of an audit.
https://www.coindesk.com/markets/2022/01/26/tethers-new-acco...
https://fortune.com/2021/10/15/tether-crypto-stablecoin-fine...
That's why Bitfinex thus Tether are banned from doing business with US citizens.
> A bank run is a fairly mild event compared to a death spiral. In a bank run, your $1 stablecoin is backed by some pool of assets that are worth something; a rush to withdraw money leads to fire sales that depress their value, but their value derives from something other than confidence in the stablecoin. In a death spiral, the whole system is built on confidence in the stablecoin; if that confidence evaporates then there is no floor at all on the value.
I think what the UST situation is showing is that for a stablecoin 0.90$ is a lot closer to 0$ than to 1.00$. There is probably an interesting mathematical structure to the 0 and 1$ attractors.
So they've basically re-invented fractional reserve banking, with Terra/Luna taking the place of bank notes in old-timey banking, and BTC being the gold bars sitting in bank vaults, in this metaphor.
What do you mean by this?
Bad future: State owned CBDCs with types for different 'kinds' of people creating a society even more neofeudal
Good future: Decentralized DAPPs organizing workers with shared interests regardless of their location and social capital
Back then, I thought that using a different collateral (e.g. US real estate), properly "locked", would have been much more interesting.
Then eventually I co-founded a startup in 2017 [0] (but left quite early at the end of 2018), with the idea that the "city of the future" should have something to do with crypto and digital. The company had made a lot of progress since I left (I still have a small chunk of shares, otherwise not really affiliated with them anymore).
Imagine if you could take a house worth, say, $100,000, then "lock" it in a "trust" controlled by a token (NFT, we used these back in 2017 when no one knew about them), and you can use up to a safe % of the house value as collateral for a stable coin (say 20%, or $20,000). The NFT acts as a "key" to the property.
Fabrica found a clever way to do this, with the aforementioned trust. In a trust you can say that the beneficiary is whoever owns a certain NFT. You can "sell" a house (more properly, transfer control/benefit of the trust owning the house) with a simple transaction on the Ethereum blockchain.
This would allow you to use the intrinsic value of a property (being a collateral), without any side effects, by simply "locking" the NFT associated with the property. The moment you want to "unlock" it, you give back the $20,000 and unlock the NFT, and then you can unwind the trust and go back to the original ownership structure. Or, change the trust so that the beneficiary is now a person, not an NFT.
I thought this would be a revolution. Of course, it didn't happen (while I was at Fabrica we went through the 2018 "crypto winter" and that almost killed the company, then we had to part ways, and the team who was left struggled for a while before regaining some financial stability). We also decided we didn't want to do an ICO, because we thought most of these were scams, and it wasn't the right way to build trust with our customer base.
Well, I hope this was interesting to read.
All that was old is new again:
“The newly created Rentenmark replaced the old Papiermark. Because of the economic crisis in Germany after the First World War, there was no gold available to back the currency. [Minister of Finance] Luther thus used [economist] Helfferich's idea of a currency backed by real goods. The new currency was backed by the land used for agriculture and business. This was mortgaged (Rente is a technical term for mortgage in German)…”
... you've reinvented the mortgage? Except with significant overhead for the trust, which requires a bit of conveyancing in the real world.
Also governments are becoming wise to the risks in allowing property to be owned through blind trusts, requiring registration of the beneficial owner, e.g.: https://researchbriefings.files.parliament.uk/documents/CBP-...
And is there any sensible world where it stabilizes at some value other than 0 or 1?
Yes, if a lot of btc is bought in this stable coin, and the stable coin is printed, to buy btc in order to pump up the btc price then if that stable coin loses its peg, it cannot be used to pump btc anymore. When Tether finally dies it'll take down btc and the whole industry with it
Although BTC has been trending downwards with most of the rest of the financial markets this week.
Is price discovery quivering? Or is someone actually buying UST?
ETA: Though, as some people are learning now, you're not actually removing your crypto price risk.
It also provides a system that can pretend it's not subject to money laundering law.
[0] https://techcrunch.com/2022/05/10/us-treasury-secretary-jane...
[0] https://fortune.com/2021/10/15/tether-crypto-stablecoin-fine...
[1] https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
That aged well. Tether hit $0.9935 hours after this comment.
Now much smaller, and steadily down. Probably nothing but a definite change in their patterns
Not saying Tether is the bastion of trust but the data shows exact opposite of what you are implying.
I'm sceptical enough of Tether that my opinion isn't interesting, but the trending nature of the slip could easily turn out to be an early warning.
And yeah, Musk tweeting that Twitter will accept Dogecoin isn't going to prop up the market in its current falling state, but once the market depresses somewhat and then stabilizes, Musk announcing support for Twitter+crypto would be enough to start pumping up the market again.
Sure, Twitter will “accept” Dogecoin. But the only reason people have Dogecoin is because they expect its value to rise, and rise dramatically.
So why would anyone pay for whatever they’re paying in Dogecoin, when they expect the value of Dogecoin to increase in the future?
So, for example, if I’m trying to make a transaction for $10. And let’s say the dollar loses 10% value due to inflation in a year, while Dogecoin increases by 20% in a year. If I pay for the transaction in USD, a year later in 2023, that $10 USD would be worth $9 in 2022 USD.
If I pay for it in Dogecoin, however, the $10 worth of Dogecoin would a year later have been worth about $10.80 in 2022 USD.
If you think the value of crypto is going up then it makes absolutely no sense to use crypto for transactions.
Also, that $1 valuation was supposed to be backed up by around $4 billion worth of bitcoin. If Terra (the company behind UST) starts selling bitcoin to prop up the valuation, the price of bitcoin will also tank.
And since markets anticipate that this is what will happen, the price of bitcoin is already tanking, which reduces the value of the no-longer-$4B hoard, which means they would need to sell more, and you can see where this is going.
That is uninformed and incorrect. UST is supported by promise of conversion into LUNA at $1 per UST, so it is supported by convertibility.
It is unwinding. I have not held either of these.
Those not just making stuff up can read the docs: https://www.terra.money/intro-to-terra
https://twitter.com/stablekwon/status/1503296630396645376
More details: https://techcrunch.com/2022/04/06/terras-founder-plans-to-ba...
It's unclear how much BTC they actually amassed and how much, if any, is left. But at the end of the day, beyond all the techy handwaving, Luna was propped up by essentially Ponzi-like promise of 20% returns and now that has collapsed.
UST has convertibility by burning it at $1 into LUNA. Anchor protocol 20% did not seem sustainable. I looked into this contraption and stayed away from all of it. In hindsight, of course it all seems obvious.