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Comment by TacticalCoder | Hacker News Reader

It's totally incredible that Circle, owned in big part by Coinbase, a HN unicorn which always tried to do things legally, ends up probably losing $1bn (about 30% of of $3.3 bn) due to good old regular banks doing what they do best: making customers deposits disappear.

Now Circle is sitting on $30 bn in short term US treasuries backing USDC and I don't think they're forced to give the yield back to people holding USDC, so Circle has to be minting something like, what, 1 billion yearly now that rates went up?

So they may be able to get away with eating a $1 bn loss.

Meanwhile the tether/Bitfinex fraud in the Bahamas is continuing to do just fine and its Circle/Coinbase/USDC that happen to be in trouble.

Because of an actual bank unrelated to crypto.

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> due to good old regular banks doing what they do best: making customers deposits disappear.

What would you estimate is the total value of customer deposits that banks have loss in failure over the last say 30yrs?

> What would you estimate is the total value of customer deposits that banks have loss in failure over the last say 30yrs?

Well of course if we consider only those where loss actually happened and not those where the losses have been mutualized by bail-outs, it may not be gigantic. But, I don't know, in Cyprus hair cuts made $8 bn of customers deposits vanish.

That's just one I know from the top of my head without needing to google.

Would you be willing to make a honest try to compare quantitatively the percentage of deposits lost in regulated western banks vs money lost in failed crypto exchanges, stablecoins etc?

I think the difference must be many orders of magnitude to the benefit of regulated banks.

Percentage wise I would bet crypto is way riskier.

In gross terms, crypto is tiny compared to the dollar/euro banking system, so it's likely to be a much smaller number.

Interestingly, for those who use crypto as-designed, the percentage lost to bank runs is almost nil since you 'hold your own coins'. It's people who leave their money on crypto exchanges that lose their coins.

> It's people who leave their money on crypto exchanges that lose their coins.

People who hold their own coins lose them as well. It was estimated that 3.7 million bitcoin have been already lost irreversibly [1]. That's a staggering number. It's roughly 20% of the entire supply.

[1] https://blog.chainalysis.com/reports/bitcoin-market-data-exc...

They equate “lost” with “not moved in 5 years”. That’s a strangely short cut off — I would use 10 years instead. It’s completely possible for coins to sit around for 5 years in cold storage addresses without being touched.

It's funny because just this week I moved some BTC from a wallet I hadn't touched since 2013. And I used it to pay for something pretty mundane. In retrospective, the idea of someone whipping their "10 year old wallet" just to pay for something trivial is a bit amusing to me.

Be careful with statements like this to not dox yourself too much

Meh. I'm sure there's a lot of transactions like that.

Yeah but some of my own coins are considered to be 'irreversibly lost', simply because I haven't touched them in five years.

I don't see why I should take this seriously.

It's an estimate.

https://en.wikipedia.org/wiki/Estimation

There comes a point where an estimate turns into a guess though. I would argue they are way past that point.

I think you are selective here. There are lots of coins that have lost value permanently (FTT, luna etc), I also remember reading that there are lots of coins whose network has simply shut down due to lack of interest (no source here, though)

I don't think including "coins" that have lost value tilts the balance against crypto.

The vast majority of traditional currencies have lost nearly all of their value over time, including the US dollar.

Tell that to Slope Wallet victims

Banks failing is pretty rare, not 30 times a year.

“Silicon Valley Bank is no more. It’s the first bank backed by the Federal Deposit Insurance Corp. to fail since 2020.”

https://www.marketplace.org/2023/03/10/how-silicon-valley-ba...

I would argue that `since 2020` is still too frequent for most people

There was a very uncommon event that began in 2020.

there was also a very uncommon event in '01, '08, '22..

.. at some point, we're gonna have to step back and take a look at how we're doing business. Something about our whole way of organizing society is busted.

Not sure how you come to that conclusion with the happenings discussed in this thread.

Aside from the crypto scandals, the insider dealing scandals, the money laundering scandals, the price and index fixing scandals, and the corruption scandals, there have been 562 bank failures since 2001.

https://www.fdic.gov/bank/historical/bank/

Finance is inherently an opportunist, if not outright criminal, industry which explodes regularly causing huge economic and political damage.

Which is probably well under 0.1% of total companies that failed over the same period.

The thing is failed banks don’t mean depositors lose all their money. The point of banking regulation is fail fast so banks are taken out when they still have 98% of their depositors money not 8%. People with under 250k are made whole and people above that have already been compensated for their risk by higher interest rates.

It doesn’t always work perfectly, but in many cases a failed bank just means people come in on Monday and there is a new sign on the building with little else changed.

Appending scandal to an event isn’t having the persuasive effect you’re looking for. Finance is also the industry which helps us collectively coordinate our resources, grow our wealth for retirement, and facilitate risk taking. Every industry has issues.

562? Great. Now give me a context for that. How many banks are there?

And, of those 562, in how many of them did the depositors lose money?

It depends on the state of the market. During the banking crisis, 157 banks were closed in one year[1].

[1] https://www.fdic.gov/bank/historical/bank/

Are you counting bailouts as failure or not?

I have personally been bailed out by a government when the bank I had a savings account in failed, and its countrys insurance scheme refused to pay. I have had fraudulent charges made to my bank accounts.

On the other hand, the keys to my ethereum remain safe on my hardware wallet, and none of my ethereum has ever moved without me telling it to. Perhaps my experience is atypical, but I am surely not alone.

They said quantitatively not anecdotally.

Sure, and I didn't answer the question. I think it's hard to answer the question in a fair way. Banks and financial instututions fail in various ways from small to big more than most people think. On the other hand, they are 'too big to fail' so their mistakes get fixed by governments out of the public purse.

These options are not currently available to cryptocurrencies, but that's a social choice.

I tend to think that the scamming aspect of cryptocurrencies is massively overstated. There are lots of ways to be taken in and scammed, but that's true in the fiat world too. A small amount of care goes a long way in both worlds.

US consumers lose about $30 billion a year to retail banks.

http://www.breckyunits.com/the-great-bank-robbery.html

Seems like its around 30 banks a year in the usa. Not sure about deposits, theyre relativelly covered. But shareholders get wiped out every time.

But you seriously believe that banks are generally better at completely losing deposits than keeping them? It’s just hard to see any evidence-based person believing that.

https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...

And how much money was lost in those failures by depositors?

And don't fall back on 'they were bailed out'. They were bailed out by other banks buying their assets + liabilities, and by the insurance payments they were making. They weren't getting a blank check from the treasury. That's the system working.

Who bailed out the crypto losses? Some of the losers got made whole, but many, many, many are realized losses.

> And don't fall back on 'they were bailed out'. They were bailed out by other banks buying their assets + liabilities, and by the insurance payments they were making.

Is that true? I'm not sure it is. The U.S. government gave hundreds of billions of dollars direct to banks and other institutions. The total actual cost has been estimated to be around $500 billion, despite claims that the loaned money was all paid back.

https://en.wikipedia.org/wiki/Emergency_Economic_Stabilizati...

https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much...

Let me correct that for you. "The total actual cost has been estimated to be around $500 billion, though to be frank the loaned money was all paid back."

That quote appears nowhere in the linked MIT Sloan article or the paper it summarizes, so please don't post such misleading quotes.

As I already mentioned and from the paper's abstract:

> Those conclusions stand in sharp contrast to popular accounts that claim there was no cost because the money was repaid, and with claims of costs in the multiple trillions of dollars.

So to be clear, the paper claims there was still a cost of $500 billion even though money was paid back.

I highly recommend you to check the original source referred in that article to understand the methodology used and what they were referring to.

https://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsARFE...

FDIC can insure up to $100k (before 2008) and up to $250k (post-2008), so that's at most one person can get back, the rest puffs and it's gone.

What crypto losses you're talking about? The ones from centralized custody operators that hold your money in arbitrary way rendering your balance on web page in crypto currency or something else?

> FDIC can insure up to $100k (before 2008) and up to $250k (post-2008), so that's at most one person can get back

This is wrong for two reasons:

(1) The insurance limit applies per owner per ownership class; its possible to have accounts in more than one ownership class, and thus more than $250k insured.

(2) Recovery of the insured amount is guaranteed by the full faith and credit of the US government. Recovery of additional amounts is possible, and FDIC will make an effort to make it happen, but that's no guarantee.

$250k is not the most an account holder can get back if a bank fails, it is literally the minimum.

It's the maximum bank can get insurance for.

No, it is the minimum , maximum, and only insurance the FDIC provides. Banks can and do get private insurance beyond that.

And stop acting like any uninsured money evaporates in a bank failure.

Actually probably just stop talking about banks. This whole thread is an embarrassment of “smart people with strong opinions about things they have zero knowledge about”.

Well, thanks for clarifying, TIL that "(...) since 1933, no one has lost money due to a bank failure (...)" in US, according to FDIC.

I wonder how this situation looks outside of US in more distressed economies ie. Argentina.

We had foreign banks who advertised that as a strength and sent their profits to their countries. But when there was a crisis they said we are just a local bank with the same brand as a US bank and won't give the customers their savings back.

In practice since 2008 even if the theory is that it’s up to 250k in practice banks get acquired from the FDIC basically on the unspoken condition that all deposits are maintained at 100 cents on the dollar

Its not “unspoken”, its the overt goal to find a bank to take over that will provide that.

But SVB is a much bigger bank with a much larger share of uninsured deposits than a typical bank failure. If the problem extends beyond liquidity and really is an insufficiency of assets by any significant share, its going to be hard for a no-loss takeover to be facilitated.

And that’s the majority of banks in the US, or the majority of bank customers that were affected?

Seriously, it was a childish and overly dramatic comment. Stop digging.

If I recall correctly, Cyprus “doesn’t count” because those depositors were making something like 9% interest, and therefore they were morally closer to investors. I don’t have a citation at hand...

Back then 9% was such a spectacular yield, “only” 2-3% above what many other more reliable Euro banks were offering

in 2012-2013 reliable European banks were offering 6-7% yield? With ECB rates <1%?

Sorry, you’re right. For some reason I thought it happened at the same time as the Icelandic banking crisis back in 2008-2009.

There was also the Icelandic bank collapse, which was multiple banks totalling tens of billions of euros. I personally lost a large chunk of savings in that, and was eventually bailed out by my own government (i.e. my own tax money).

It wasn't the banks doing the haircut in Cypress, it was the government. You can't blame that one on the banks.

>But, I don't know, in Cyprus hair cuts made $8 bn of customers deposits vanish.

Ah, so less than 1 FTX?

I would encourage you to learn about what actually happened in the Cypriot defaults.

You are forgetting the many billions in taxpayer bailouts that have kept them alive, and the FDIC.

And who pays for the FDIC? Member banks. So the existence of the FDIC does not make the original claim any more true.

Tether is trading at a premium right now and it hasn't lost anyone's money.

Their banks also have to follow Basel III regulations, unlike SVB.

Exempting "small" banks with hundreds of billions of liabilities from globally agreed upon regulations is a uniquely American issue. Yay lobbbying.

Ethereum transaction fees just did a 10x as people are rushing to move DAI and USDC positions.

Coinbase isn't in trouble because of this. Coinbase is in trouble because they're trying to run a legitimate cyrpto exchange, their chances of success are the same as an abstinent whorehouse.

>Now Circle is sitting on $30 bn in short term US treasuries backing USDC and I don't think they're forced to give the yield back to people holding USDC, so Circle has to be minting something like, what, 1 billion yearly now that rates went up?

What makes you think they aren't susceptible to the same type of run? They now own treasuries with higher yield and lower prices.

Their average yield to maturity is 36 days, not 6 years

They haven't lost any money even if marking to market, and worse case just need to hold out a month for maturity

> good old regular banks doing what they do best: making customers deposits disappear.

One of the more inane comments I've read here.

Why makes Tether a fraud?

> Why makes Tether a fraud?

They've been convicted of fraud. They had hundreds of millions seized from bank account of criminals which they helped launder money for. They cannot operate in NY anymore and the NYAG fined them. I think Canada banned these fraudsters too?

They also sold Moonstone bank to SBF/FTX which illegally siphoned money out of the US to the Bahamas.

Nothing smells of fraud as much as tether/Bitfinex. Not even Madoff.

However, today, USDT is looking pretty good in comparison.

That's the thing about frauds. They look really good until all of a sudden, they don't.

I'd suggest that is not unique to frauds. One could say the same thing about any corporation, or currency, or government, or celebrity.

Frauds always go bad

I would add one exception - religion. Having the big pay day come after death means that the fraud can never be uncovered.

I don't know. Centre is publishing the individual short term US treasuries numbers of every single short term US treasury they own. They've got $9.8 bn at various US banks, minus potentially the loss on $3.3bn they may have to take now but even a $1bn loss and that'd still make USDC backed 0.975:1 or something. Not taking into account the insane yeld they're making on the $30 bn of short term US treasuries they have (for their clients, but I think the yields are for them).

That compared to a bunch of shady people in the Bahamas, deeply tied to the SBF/FTX fraud...

But yup, today, tether looks unaffected.

Coinbase pays 4% on holding USDC on their site... so at least some portion of that yield is going to their customers.

based pretty much on the fact that since they are completely free to do whatever they want, they are actually free of risks like this

i mean, circle at least shows their reserves, usdt has never done so...

it resumes to: since you wont ever see how bad their finances are, you just assume they are good.

the perfect crime

It doesn't help that they stored some of those reserves in a bank.

Madoff looked good for decades.

Right, but in moments like this, people sitting in USDC have nowhere else to go.

Looking at the stablecoin markets right now, there are two choices... USDT or BUSD.

Or, BTC/ETH, which explains why those are currently up and everything else is down.

Okay, but how are they a fraud? You've said they helped launder money, which if true is certainly criminal, but how are they fraudulent specifically?

Is there some evidence that they are not fully backed?

Wouldn’t they have been holding large amounts of treasuries from before rates went up? If so then they would be sitting on large mark to market losses, just like SVB, no?

>owned in big part by Coinbase

How much of Circle is owned by Coinbase?

I was confused. Circle and Coinbase created Centre and Centre's website say Centre created the USDC stablecoin. Circle and Coinbase each own 50% of Centre. I don't know if Coinbase also owns a part of Circle or not.

Curious, why you picked 0.30/$ recovery. Just speculating?

OotL: Where do the 30% come from?

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