
Stablecoins: Understanding Counterparty Risk - ca98am79
https://medium.com/gemini/stablecoins-understanding-counterparty-risk-241d55f0b392
======
esotericn
Blockchain is a Semantic Wasteland
[https://news.ycombinator.com/item?id=18267585](https://news.ycombinator.com/item?id=18267585)

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?

~~~
traverseda
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.

~~~
esotericn
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.

~~~
traverseda
>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.

~~~
esotericn
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.

~~~
traverseda
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.

~~~
esotericn
I wish you the best of luck.

------
wanderfowl
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).

~~~
browsercoin
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.

~~~
pjkundert
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.

------
mkirklions
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.

~~~
CPLX
> just because a crypto is useful

What's it useful for?

~~~
mkirklions
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.

~~~
scottlocklin
"Stable coins" should be called "Oracle problem." How are you dealing with the
oracle problem with your token?

~~~
mkirklions
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.

~~~
scottlocklin
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.

