Bitcoin (and possibly a few others) is one of the few uses of blockchain that actually makes sense. The blockchain serves the currency, and the currency serves the blockchain. The blockchain exists to provide consensus without needing to trust any off-chain entity, but the blockchain relies on computing infrastructure that has real-world costs. The scarcity of Bitcoin (the currency) and arguably-fictitious reward for participation in mining is the incentive for people in the real world to contribute resources required for the blockchain to function.
Any real-world value given to Bitcoin is secondary and only a result of the fact that (1) mining infrastructure has a cost, and (2) people who understand the system have realized that, unlike fiat, stablecoins, or 1000 other crypto products, Bitcoin has no reliance on trusted, off-chain entities who could manipulate it.
You trust your stablecoin's issuer that they hold enough fiat in reserve to match the coin? You might as well trust your bank, but while you're at it, remind them that they don't have to take days to process a transaction - they could process transactions as fast as (actually faster than) a blockchain. But I imagine most banks would point to regulation as a reason for the delays, and they might be right.
So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?
Stablecoin is not a technology. It's an excuse. An excuse to do what banks do while not being regulated like a bank or using the infrastructure banks use. Similar to how Airbnb is not a technology but an excuse to do what hotels do without hotel's license.
So it makes no sense to compare it to database, a technology.
Will this excuse work? Banking is a heavily regulated field so it's less likely than Airbnb, but it's ultimately up to lawmakers.
JPMorgan Chase, BofA, and their ilk have R&D budgets large enough to have already launched a dozen stablecoins by now. They haven't, not because they can't (on a technical level) but because they don't actually see the value to it (on a business level). They're simply paying lip service to crypto because it pumps up share value, the same way every business was bragging about their AI investments just a few months ago.
That always works out great.
Can't wait for the next explosion, followed by government bailout, followed by some portion of all our wealth vaporizing, all to the benefit of a small number of people.
The regulation that came after has in my personal experience privatized airbnb and now it's hard to find a private renter, when I started using it that was the standard.
More examples include Uber to bypass taxi regulation, and generative AI to bypass copyright regulation (as well as consumer protection regulation in both cases as well as labor protections).
It's awful how behind the times the US is when it comes to banking. 2 - 3 days to get money from one account to another is beyond embarrassing in the modern day. It took the US something like 15 years to get chip-and-pin.
Banks are still these monolithic entities that don't care to innovate or listen to customers because "what are you going to do, go to one of the other 4 monoliths that are all in cahoots with each other"
Uber just captured wealth via operating at a loss until competition was absorbed or destroyed.
AirBnB just helped further drive up the prices of single family homes and didn’t really have much effect on the hospitality industry at all - it caused a minor observable loss in profit which ultimately resulted in nothing.
I've had next day ACH between all my various accounts for years now. Wires have also been a thing basically forever though most people need to pay to send and receive them. Same day ACH and FedNow are both out there too, though I've yet to see widespread implementation.
One reason the U.S government has to like stablecoins is because Tether is one of the biggest buyers of U.S treasuries that they use to back their stablecoins.
In a manner of speaking. You need to trust that the issuers have the reserve they claim. There's no way around this, unless the asset in reserve is equally ethereal (i.e. another cryptocurrency).
Tether, for one, almost certainly doesn't have the reserves.
It's worth noting that no full-reserve bank has ever gotten a US banking license, even though many have tried.
Stablecoins are much more heavily regulated than banks, being required to have 100% reserves under the GENIUS act, unlike banks who generally only ever hold on to 10% of the money you deposit with them.
Using their infrastructure? Why?
banks are an excuse to have closed source ledgers that don't operate efficiently for internet capital markets
if they wanted to, they could open source their ledgers and let anyone make them faster, more interoperable, more programmable, etc.
stablecoins operate on infra that is more like linux for finance, anyone can contribute to blockchain rails and even run their own nodes
Except they are frequently _not_. I dislike crypto on principle, but you can't look at the exorbitant transfer fees and latency that a lot of banks charge for common transactions (Visa/MasterCard are especially bad) and say that crypto has no potential.
Yes, it would be easier if we could just trust our banks to offer instant settlement and very low fees, but they don't.
The problem with banks pointing to banking regulation is that they helped shape the regulation - and they did so to protect their business, not to help consumers.
We know that central banks are great at monetary policy. We know that decentralized protocols remove a lot of the more parasitic traits of banks. Why not have a central bank currency that can be traded on the blockchain, especially since converting it to real money will still entail KYC?
Because literally the only point is to avoid the existing banking system and you can do that with a postures database with much less cpu involved.
Ethereum is actually very low resource intensive nowadays.
You can run a validator node on a RPI, a full sync node on a Intel N100 minipc with a big fast SSD and the "light clients" can probably run on something very small.
I have seen banks having to bring semi-trailers full of diesel generators to plug them to their mainframe because the current requirements were too high for the grid during big batch jobs.
Blockchain solves that. Newer blockchain protocols especially an L1 is much faster, easier on the environment, and provides all the immutability, transparency, and traceability benefits.
All transactions must be derisked (there is a fallback if the transaction fails). This usually means backed with reserves, which also means they cannot be instant.
Now if you don't care for the risk management of a bank, sure, go ahead and do what you would like.
The real and continuing reason for the delay is to give time for repudiation and assessment of fraud, money laundering, and other financial crimes risk. The risk of instant transfer is instant theft or otherwise absconding with money that shouldn’t be yours. In fact settlement delay makes reserve problems worse because you effectively “hold” money that could potentially not be properly secured during the hold and cause a default on a transaction that was otherwise taken out of balance and pending transfer. Instant clearing and settlement makes this unambiguous. But it also makes transactions as risky as a cash transaction - instant and irrevocable.
For some customers this is legitimately ok. But by and large most customers benefit from the delays more than they’re hurt by virtue of having a window to repudiate a transaction that is illegitimate. It’s just they don’t recognize that value until they need it. We all benefit from a system that disincentivizes criminality overall. It’s hard to recognize it because we exist day to day with that benefit and it’s hard to prove the negative, but there were times without the protections against financial crimes and financial oversight and they were NOT better times. They were objectively worse, so our ancestors built a set of guard rails to prevent the endemic badness around us.
It appears though as they die off, and as we become less attuned to history, we are very busy ripping apart the guard rails our ancestors very carefully and thoughtfully built into our societies like some junior engineer who assumes every line of code written before them was written by an idiot. Take the American CDC as a case in point - the modern public health system was a very hard won victory against endemic diseases by generations - and as the generation who established it expires, we rip their legacy to tatters.
I think everywhere but America has already figured this out.
Instant bank payments are pretty standard everywhere else, even third world countries.
How long is settlement for you and what are the fees. Are you talking about banks for credit card payment processors A business needs a processor which will take fee and add some delay
stablecoin issuers are for all intents and purposes banks.
they'll try very hard to stop anyone from calling them that, but in essence, they give you a note (a crypto coin, in this case) in exchange for a promise that they'll give you back the amount of fiat printed on the note. this is the primary purpose of a bank.
Stablecoins are three raccoons in a trenchcoat who pinky promise you can trust them.
> they'll try very hard to stop anyone from calling them that
because they are banks at the core of what they do, but don't want to be regulated like banks.
It's hard for the average non-US person to opt-into the US financial system. Sure, they could hold dollars in banks, but local monetary policy can nix that privilege at anytime by imposing foreign exchange controls. It's happened before, in some of the largest economies in the world: China in 2015, India in 2013, Argentina in 2011.
The current way users solve this problem requires a lot of resources. That's why you usually only see rich people have Cayman accounts, Canadian real estate, and shell companies in Panama. Stablecoins on permissionless blockchains make this process 100x more accessible for the average person.
So yes, stablecoins currently let you circumvent regulation.
But regulation can be a prison where you can pay to be free.
So what happens when it costs nothing to get out of jail? What kind of strains do this place on economies that people escape, as well as the economies that people join?
I guess we'll have to wait and see.
As opposed to no regulation where you can't? I don't understand this sentiment at all.
My point is stablecoins give you choice to opt out of that. The only way to opt out before was very expensive
They are arguing that stablecoins, specifically, require an off-chain entity that ultimately control them. And if you have an entity actually in control, why go through the trouble of blockchain? Then you can just have the controlling entity run a normal non-blockchain ledger.
I like the argument elsewhere in this thread that the actual reason is that it allows running a bank while pretending it’s not, bypassing regulation meant to protect depositors.
There is also good regulation e.g. the EU made it so banks process transactions within "10 seconds", including and especially cross-border transfers for SEPA countries (Single Euro Payments Area). https://www.europarl.europa.eu/news/en/press-room/20240202IP...
So banks willingly being slow with transfers is perhaps a question for your local policymaker to remind them they can do better.
International wire money transfer is far too difficult today. And after you've sent it, you still need to wait minutes (hours?) for the receiving end's bank to actually process the wire and move it into the recipient's account (correctly).
Then you need to nag the receiving party to check their account every few minutes so that they can inform you that they actually did receive it successfully. What if they're in a different timezone? 12 hours off?
Moving money on a blockchain is far simpler.
https://www.santandercib.com/insights/innovation/sepa-instan...
That becomes mandatory in October this year
Wise isn't great for paying suppliers. Their business account limit for debit/credit is $2k, and for ACH is $50k. They have higher limits if you fund with wire, but then we're back at the starting problem again...
And still, you have no way of knowing that the receiving party actually got it. On a blockchain, the source-of-truth "database" is public.
And if I send one I’m carful the details are correct, but I’m not completely doomed if I typo the account number.
To get coins fully controlled by circle.
On a chain with low fees controlled by Coinbase (base) for example.
In this case this new L1 won’t even be distributed by anyone initially too.
It all seems like a Ponzi scheme or small utility for international users. Otherwise I don’t know why you’d trust these centralized authorities.
What stops someone at circle deciding to issue more usdc without real dollar backing
Well, the law now. The recent stablecoin legislation has a lot of new regulations.
If you mean what technically stops them, then nothing. But that's true of all the crimes I can think of, the law can only be enforced after the crime takes place.
- by USA government (indirectly) to re-dollarize the world without generating too much USA inflation, another IMF SDR mimicking China usage of foreign currencies to avoid hyperinflation;
- by many migrants in the I world to send money home, something in the III world could be converted to USD at a much cheaper rates and with much simplicity than classic banking/money transfer solutions;
- as a hedge against local currencies, considering dollar or some other currencies much more stable (see for instance the Argentina forcibly conversion overnight of USD accounts to ARS with enormous loss in 2002;
- as a decorrelated asset for DeFi trading on non-stablecoin cryptos (meaning market timing, buying BTC, ETH, SOL, ... when they dip, swapping then to some stablecoins when they top, waiting with the stablecoin for the next dip to buy).
In that regard the (unlikely) real existence of the collateral they claim is not much relevant: as long as most trade on stablecoins come from DeFi the Venezuelans, Bolivians, ... who choose them to bring USD home, the few company using them to pay B2B stakeholders in various countries are still happy anyway, as long as the stablecoin remain de-correlated to other crypto traders are happy anyway.
Tokenised stocks are more likely used to circumvent regulations since you can buy them swapping non-KYC coins against them avoiding capital gains taxes, at least partially.
Contradictory requirements.
It's very difficult for many folks to accept this, but the difficulty of producing something (mining) does not determine its economic value: https://en.wikipedia.org/wiki/Labor_theory_of_value
I'd argue the real value of money lies in contract enforcement. And I am talking about real world physical enforcement like police throwing you in jail. In financial engineering literature we don't really care about the real value of money, the only assumption needed is that contracts are enforced. If that is the case then you can hedge.
For example: You sign an employment contract where you get paid in USD. You also sign a rental and utility contracts in USD. If salary > housing cost, then you essentially have your housing needs hedged. You don't really care that USD has "real value". The value of USD lies in the fact that these contracts are enforced by the government.
The rarity of a currency is important in the sense that contracts don't make sense for all parties if the currency is too abundant. For example, if you can find USD laying on the street, then you would not work for USD. The rarity mechanism itself is not important.
When a stablecoin is issued on a public chain then the issuer cannot secretly censor transactions and the activity of the issuer in general is auditable.
You also get access to all the magical DeFi stuff.
Other than this you, as a person, don't need to be aligned with the current political regime you live in to open a stablecoin "bank account". This on its own is a huge breakthrough.
It is completely decentralized and doesn't use a flawed algorithmic stablecoin mechanism like Terra-Luna but rather creates synthetic cash exposure by shorting perpetuals against collateral the same way a TradFi investment manager would manage their asset allocation exposure. The perps are traded on DEXs and I believe the BTC and ETH is held in on-chain vaults.
This is a solid model and I believe the leading decentralized stablecoin.
Things like USDT and USDC are essentially tokenized real-world dollars. Nothing inherently wrong with that, for example the Eurodollar market has existed for decades, but it does require oversight that collateral reserves are what they are and also means they are not truly decentralized as you point out.
It's a hedge fund with a dual structure
I'm actually quite disappointed that this is how they implement the protocol because to me the main benefit of the hedged collateral model was that it was the one way to produce a truly decentralized stablecoin. Do you know of another project that implements the same mechanism fully on-chain and decentralized?
But now, the use case Stripe is talking about is basically the equivalent of creating WoW Gold for companies, and bypassing state money entirely, but IRL.
This is a dangerous idea.
Big corps have become immensly powerful, but they are still kept in check by the state for 3 reasons: the monopoly on law, violence, and minting money.
Lobbying is taking care of the law.
And now they are coming for the money.
Crypto currencies were supposed to taken the power of currency from big actors and back to the people. It's going to take it from the state to companies.
Soon, they will effectively have more power than the state, and citizens will be screwed.
A narrow bank is a bank that takes deposits but doesn't make loans, basically parks the cash at the central bank or into risk free instruments. So it provides you with payment facilities, very low interest rates, without the credit risk that comes with a large bank that has exposures to all sorts of risky businesses.
Everything else is either temporary benefits of arbitraging slow moving regulations (but KYC, consumer rights, money laundring regulations, etc are quickly catching up), or as you suggest, some non sense about a zero trust system (crypto / public ledger) that fundamentally relies on trusting a custodian (so you might as well use an oracle database and spend in licensing what you save in energy cost!).
I had tried to describe this effect recently when Trump lowered bank reserve requirements, urging traditional banks to buy stablecoins with the extra funds this gives them.
My comment was that it increased risk (less reserves), without any potential upside in new economic activity. Basically all the money would flow to the govt in the form of treasuries the stablecoin issuers buy.
As opposed to the banks, you know, lending money to businesses.
I think that's it. We're very unlikely to see international transactions between banks happen as easily and as quickly as they can with a stablecoin, even though it's technically possible.
I think part of what makes it easier is that with crypto there's "no take backs" since it's largely impossible. Banks have to worry about fraud constantly because they're somewhat liable.
Otherwise they’re doing the exact same thing.
> So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?
They allow businesses to act like banks without obtaining a commercial banking license. Initially this circumvents regulation, but over time, it allows entities to outsource solutions for those pesky regulations (compliance, audit, etc.) to third parties.
Circumventing sanctions.
BTC was a first draft that somehow metastisized into a literal meme virus that consumes a stupifying proportion of the world power supply.
It's idea cancer. The fact that it continues to exist is a sign of a faulty memetic immune system in our species.
It makes no sense in the real world.
And in a lot of places, they don’t. I haven’t had to wait days for a transaction for… more years than I can remember, in the UK or Australia.
What open-source shared ledger would you suggest is a better fit?
This is missing the fundamental idea behind blockchain. You need a consensus mechanism and immutable ledger in order for it to be secure and truly transparent. Once you add those boom you have yourself another blockchain :-)
>So what are stablecoins really trying to do? Circumvent regulation?
No, stablecoins have less regulatory burden because of the public ledger removing the need for manual review and verification by various intermediaries. They are still compliant with regulation.
Consensus between who? The stablecoin issuer, stripe in this case, is a single party, who are they coordinating with that requires a consensus algorithm?
Blockchain consensuses: Which is the next block, Which protocol version must what quorum upgrade to before a soft fork locks in, Whether a stake should be slashed, Leader/supernode election (handled by the UNL text file in git in rippled, which underpins R3, W3C Web Monetization micropayments, and W3C ILP Interledger protocol (which FedNow implements)),
When there are counterparties and then they might as well just off-site replicate the whole database or blockchain locally, and run indexes and queries at their expense.
And then there is a network of counterparties willing to grant liquidity to cover exchanges that cover multiple assets and chains, who want to limit their exposure by limiting the credit they extend to any one party in the network and account for an entire auditable transaction. (Interledger ILP Peering, Clearing, and Settlement)
Private blockchain or SQL replication scaling woes? And then implement mandatory keys in an append-only application.
This or something like Trillian?
From "PSA: SQLite WAL checksums fail silently and may lose data" https://news.ycombinator.com/item?id=44672902 :
> google/trillian adds Merkle hashes to table rows.
> sqlite-parquet-vtable would workaround broken WAL checksums.
> [...] [cr-sqlite implements CRDT, which is one of a number of newer ways to handle consensus in SQL database replication ]
> (How) Should merkle hashes be added to sqlite for consistency? How would merkle hashes in sqlite differ from WAL checksums?
I think the unspoken part here here is that the lack of transparency is a feature for some users.
I'm generally a cynic on cryptocurrencies and I think they're kind of terrible for society in a lot of ways, so none of what follows should be taken as a positive opinion on cryptos. I'm just explaining how they work.
There will always be two competing interests with regards to currencies:
1. On the one hand, consumers make mistakes and get scammed, and want reversible transactions.
2. On the other hand, sellers don't want reversible transactions: if you sell a bike for currency and the transaction gets reversed, you don't get your time back even if you get the bike back in mint condition--and getting the product back at all isn't always possible, if the product was a tattoo, a class taught, or some intellectual property.
In traditional financial systems, anyone operating a financial system in a centralized way always gets bullied into reversing transactions. If you're the bank running it, you just screw over the seller most of the time because they are too small not to work with you and the customers you bring, and buy insurance for the rest of the time.
With stablecoins, so far, this hasn't happened. Sure, if you complained to Circle about getting scammed in USDC, in theory they could just un-issue your spent coins and issue you some new coins, but that would be in violation of their entire crypto ethos. Like fiat, the value of the currency is only based in belief in the issuing central entity, but unlike fiat, part of that belief in the issuing entity is built around them not reversing transactions.
Will that belief be enough to hold it, forever? I don't know, but I think it's definitely a stronger power than people believe it is, even if it's not literally the power of electricity being poured into hashing.
As a side note: not all stable coins are issued by a central entity. There are two other types of stable coins I'm aware of:
1. Collateralized: Examples: DAI, VAI, and I think MAO. Basically, anyone can borrow (mint) these currencies by storing other assets in the protocol. So for example you can deposit $1000 worth of Ethereum into the DAI protocol and that allows you to borrow some safe amount of DAI which is minted on demand, say 400DAI. If the value of your deposited Ethereum falls too close to $400, the protocol automatically sells the Ethereum to reclaim DAI which is then burned to keep the price of DAI from falling. But assuming your margins stay safe, you're able to repay your DAI at your leisure.
2. Algorithmic: Examples: TERRAUSD, IRON. These are paired with a second, unstable cryptocurrency (TERRA/LUNA, IRON/TITAN) which is used to stabilize the coin. If the price of the stablecoin rises above $1, you mint more and distribute it in some way, diluting the coin to bring its value back to $1. If the price of the stablecoin falls below $1, you mint more of the unstable coin and use it to buy back and burn the stable coin. In case it isn't obvious: this only works if the unstable coin has value for some other reason, and in both the example cases--it ultimately didn't and both coins came unpegged when the unstable coin crashed to 0. FRAX/FXS worked this way originally I think, but ultimately they've moved to a more collateralized model.
I’ve always wondered how disputes are handled under such systems.
I think the financial industry has figured out a way to do an end run around all financial regulations written since the 1930s.
I think like vaccine mandates, we will all have to "relearn" why we wrote this regulations in the first place the hard way.
yeah and this is great. I couldn't care less for banks protection.
Revolut blocked my account with 8k on it for 8 months, though their app said it will be max 2 weeks.
Customer support ignored me for 6 months until I said I am going to court.
So yeah fuck them. The is a case for banks but there is also a case for me keeping a chunk of my money in stable coins so its actually mine.
Edit: and to clarify I didn't do anything illegal, after I threatened them they completed their whatever they did and unlocked my funds that have been locked for 8 month.
And guess what - no consequences for them leaving me at that time without my safety net.
Considering that stablecoin wallets can also be blocked what is the case for you keeping a chunk of your money in them?
Tether claiming they have the ability to back up their coins with USD lets crypto people claim their nonsense actually has value.
Of course the entire thing rides on the “trust me bro” guarantees offered by tether. They could erase a lot of the stink by going through an audit but for some reason they won’t.
They're required to by the new stablecoin legislation [0] in a provision that almost looks specifically targeted at Tether. Not sure what the time frame for this is, or if there's actually any appetite to enforce the law if they dont produce a clean audit.
[0] you can read the full text of the law here, too long for HN: https://www.govinfo.gov/content/pkg/PLAW-119publ27/html/PLAW...
The reasons why are left as an exercise to the reader :)
But I suspect that if you had to construct an actual argument instead gesturing smugly at innuendo that your point would fall apart.
Please explain your "100x" stablecoin argument and if you feel like it, your asset ratio of items denominated in USD vs USDC.
Tell me you are full of shit without telling you are full of shit
The US has regulated itself into a corner when it comes to AML/KYC. Those regulations ended up causing more problems than they solve, but they can't ever be undone. If something ever happens, like a terrorist attack funded by money laundering activity that the existing regulations could possibly have prevented, the blame will fall squarely on the shoulders of the politicians who decided to undo them.
It's much easier (and politically safer) to say that stablecoins are just a different asset class, and hence very different regulations should apply to them. This essentially lets politicians design a parallel, much more permissive financial regulatory system from scratch, with many lessons learned from the existing one. If something ever happens, it can always be blamed on "those pesky stablecoin issuers who keep prioritizing profits over the security of our nation."
From a purely technical perspective, any stablecoin could be replaced by a centralized database mapping public keys to balances, at much lower cost and with very little loss in functionality. That, however, would look too much like a bank from the regulatory side.
