Cutting-Edge Crypto Coins Tout Stability. Critics Call Them Dangerous. (wsj.com) 54
A new breed of cryptocurrencies is seeking to replicate the stability of the dollar. But critics say they are a disaster waiting to happen. From a report: So-called "algorithmic stablecoins" have surged in popularity in recent months, spurring debate over whether they are good for the crypto industry. They are the edgy upstart sibling of conventional stablecoins -- digital currencies that seek to maintain a one-to-one relationship with a traditional currency, usually the dollar.
Issuers of conventional stablecoins say they hold cash or bonds so each of their digital coins is backed by a dollar's worth of real assets. But algorithmic stablecoins aren't necessarily backed by any assets at all. Instead they rely on financial engineering to maintain their link to the dollar. Some have failed, saddling investors with losses. "It's a lot more dangerous than taking a T-bill and tokenizing it," said Charles Cascarilla, chief executive of Paxos, the issuer of Binance USD, a popular stablecoin that uses the asset-backed approach. "It's a recipe for something really bad to happen."
Proponents say algorithmic stablecoins are better than the conventional kind because they aren't run by a single centralized entity. Instead they run autonomously on blockchain-based networks, relying on traders who could be anywhere in the world to keep them tied to the dollar. Such a design makes it more difficult for regulators to control algorithmic stablecoins, often seen as an advantage in crypto circles. U.S. regulators have stepped up their scrutiny of stablecoins in recent months but have largely focused on asset-backed coins. Algorithmic stablecoins are getting better at keeping their link to the dollar and could eventually overtake their conventional peers, said Sam Kazemian, creator of Frax, an algorithmic stablecoin partly backed by crypto assets.
Issuers of conventional stablecoins say they hold cash or bonds so each of their digital coins is backed by a dollar's worth of real assets. But algorithmic stablecoins aren't necessarily backed by any assets at all. Instead they rely on financial engineering to maintain their link to the dollar. Some have failed, saddling investors with losses. "It's a lot more dangerous than taking a T-bill and tokenizing it," said Charles Cascarilla, chief executive of Paxos, the issuer of Binance USD, a popular stablecoin that uses the asset-backed approach. "It's a recipe for something really bad to happen."
Proponents say algorithmic stablecoins are better than the conventional kind because they aren't run by a single centralized entity. Instead they run autonomously on blockchain-based networks, relying on traders who could be anywhere in the world to keep them tied to the dollar. Such a design makes it more difficult for regulators to control algorithmic stablecoins, often seen as an advantage in crypto circles. U.S. regulators have stepped up their scrutiny of stablecoins in recent months but have largely focused on asset-backed coins. Algorithmic stablecoins are getting better at keeping their link to the dollar and could eventually overtake their conventional peers, said Sam Kazemian, creator of Frax, an algorithmic stablecoin partly backed by crypto assets.
"Cryptocoin Touts Security! Critics Doubt Claims" (Score:2)
By then, this new cryptocoin should've crashed and burned cleanly, leaving only a fine residue of fools parted from their money.
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Doge residue! I want to buy! Gimme gimme gimme!
-- Temmie
Just pick one (Score:3)
If you actually care about devising a useful, practical and stable digital currency the mere fact that there are multiple "coins" means no one is actually serious about that, or you have a huge collective action problem if you can't get these devs to even agree to collaborate on a single project. Multiple coins wit multiple people "investing" in the coins means everyone involved deep down sees this as just another speculative asset.
Maybe it's a lack of effective leadership, maybe it's the usual open-source issue of everyone just wants to work on their own thing (which is fair, work on what you want but be aware of what that means for general adoption) but if your currency is mired in what is essentially a format war then it's not anywhere close to being ready for general use and these are just going to be very niche and probably manipulated for even more scams.
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Yeah I am not saying every single coin dev is totally maliciously trying to scam, but I think they are making their own coins for not just an ideological reason or a technical one but they do want "their" coin to be the ones to take off as that means money.
If there was no financial interest at all and it was purely altruistic to make a legit digital currency (currency being a transfer of value, not really a store of value or something expected to pay dividends or get traded very frequently to play the margi
Bitcoin *is* the original shitcoin (Score:1)
Bitcoin was set out to be a currency. Most of the shitcoins are akin to all the ripoff flash games of yesteryear. Most of them garbage from garbage, with no focus other than to rope in a few suckers.
Bitcoin is no different - in fact it's the original shitcoin.
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It's impossible to 'pick one', because that means that you can't get a fresh set of top of the pyramid people and a fresh set of suckers at the bottom each time.
And the whole concept of a 'stable coin' is utterly ridiculous.
Tied to the fiat currency you're (saying you're) trying to avoid...
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Stable coins are going in the right direction. In exchange for money some trusted authority issues tokens and promises to exchange them on demand for the purchase price. That makes it easy to move money around. You can even skip the blockchain stuff because you're already trusting the issuer as an authority. That makes it efficient as well.
You could go even further and have the whole system regulated and carry insurance so it's even more trustworthy.
You could call it "The Knights Templar" or "The Medici Ban
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Greed really isn't fundamentally compatible with the open source model. As long as someone thinks they can profit by forking yet another cryptocurrency, it'll keep happening.
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If you actually care about devising a useful, practical and stable digital currency the mere fact that there are multiple "coins" means no one is actually serious about that, or you have a huge collective action problem if you can't get these devs to even agree to collaborate on a single project.
Your argument flies in the face of the reality that any and every shitcoin is ultimately valued as currency, sitting on a planet riddled with dozens of flavors of currencies floating about, which none are really backed by value anymore. They're backed by force.
Sure, the USD is the current "king" of global currency. The GBP was sitting on that throne 150 years ago. Some other currency is likely to get corrupt enough to hold that utterly pointless position sometime in the future. That could mean shitcoin
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Your criticisms are effectively an argument against not just crypto but the entire concept of a private, non government currency: the profit motivations of those establishing the currency fly in the face of those who would use the currency for currency's purpose:
If you want a stable coin, don't link to $USD (Score:4, Interesting)
To me it seems like madness to link any "stable" coin to the USD.
The USD is doing well against other currencies, but in terms of the cost of real things it's doing terribly and getting worse (inflation).
Instead a stable coin should be based around commodities, or perhaps a set of commodities. That would give it some actual stability.
I'm staying out of the crypto space for a while until the leverage in the system can unwind a bit, but I hope someone actually does this so I feel like I can come back in. Heck, maybe it already exists, I don't have time to keep up with every corner of teh crypto space.
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That way they can directly pull the levers
And that is why non-backed fiat money s a bad idea, and bad to base a stablecoin around.
The same idea comes up every 100 years or so, and always results in dramatic failures (as we are about to see). The levers work until they do not. Good luck, you're gonna need it if you trust in USD!
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I am already in various commodities stocks (and have been for some time), would like some crypto based around it as well.
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The USD is doing well against other currencies, but in terms of the cost of real things it's doing terribly and getting worse (inflation).
Doing "well" you say? Buried in that statement? Tends to make you wonder what the fuck the purpose of the USD is or how much blood it takes to sustain that value, doesn't it? Not like we've ever been able to audit the damn thing to find out, but who the hell needs to when the arrogance of Greed is this obvious.
The USD isn't connected to reality any more than the US Stock Market is. That's not the scary part. The scary part is no one gives a shit. Greed knows this, so best expect 1929 to bend 2008 over
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It sounds nice in theory, but unless that commodity is actually stockpiled, the connection is just a peg and pegs get broken too easily
So the only commodity you can use is gold. Gold doesn't exactly have a super stable value relative to other commodities either. When gold is currency, it has all the problems of currencies. Currencies have borrowing and trading in debt, that causes the money multiplier (even without fractional reserves in retail banking, fractional reserves increase the effect, but the finan
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So the only commodity you can use is gold.
Gold isn't actually a commodity, it's a speculative asset. Real commodities get their value from the ways in which they can be used to make stuff, feed people, etc. Gold does have a little of that -- it's an excellent conductor of electricity and is useful to make pretty things -- but the vast majority of gold's value is purely speculative. If people didn't buy and hold it as an investment asset they expect to appreciate (or at least hold its value), it would be worth a small fraction of what it is. It's to
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Okay, now I want $PorkBellyCoin (each one stably pegged to the value of one kilogram of pork-belly)
You may have been joking but actually sounds more viable than 99% of the crypto coins I read about. Plus it could have a cool symbol of a fat Buddha pig.
Not Surprising (Score:4, Insightful)
A new breed of cryptocurrencies is seeking to replicate the stability of the dollar. But critics say they are a disaster waiting to happen.
That's hardly surprising. National currencies are backed by the full faith and credit of a national government that has significant power and resources and uses them to make sure its currency maintains some stability and value so it can facilitate trade. Cryptocurrencies are generally backed by random people on the internet who want to use what limited power and resources they do have to make money from you. This is not a good recipe for developing a stable currency.
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Nevermind the fact that other "stablecoin
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He's not wrong tho
Investors? (Score:2)
Why are there "investors" in something that is supposed to be pegged to the dollar? It sounds like you can either break even from a dollar perspective or lose it all, what's the upside?
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Useful for alternatives to like Paypal and CashApp.
Not really. Unless they're widely integrated into the traditional banking system, they still have most of the pain points of dealing with any other type of cryptocurrency. You still have to deal with exchanges for buying/selling them. People you're doing business with may not accept them. There's also no fraud/buyer protection.
If implemented properly, the value shouldn't fluctuate, but since they're presently not regulated you really have no guarantee.
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It's just an exchange and it's used the same way. You can give your exchange of choice $100 and they'll make you an account with a balance of $100 that makes it easy to buy bitcoin or whatever. Problem is, you have to trust that they won't rip you off or go bust or something.
The alternative is to buy $100 of some stablecoin, which you can easily use to buy bitcoin or whatever. Problem is, you have to trust that the stablecoin won't rip you off or go bust or something.
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Yeah, it sounds like the article was badly written. If you buy a stablecoin, you're supposed to be able to exchange it back 1:1 for fiat. If it fails in that regard, you didn't lose your "investment" - you've just lost your money.
I'm guessing what happened is someone exchanged their BTC or some other speculative cryptocurrency for a new stablecoin that turned out to not be so stable, and that's where the losing your investment interpretation came from.
bah (Score:2)
As has been proven time and time again, regulation isn't the problem here. On the contrary its the deregulation and associated theft (algorithmic or otherwise) that is the problem.
Can't read the article (Score:2)
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Wrong Parity (Score:2)
The flaws in the US dollar have been extremely apparent recently. [marketwatch.com] A cryptocurrency that stabilizes consumer prices would be superior any fiat currency, and rapidly adopted.
Reminds me of Margin Call (Score:2)
Every time the algorithm starts going off the rails, the shit starts hitting the fan.
imdb.com/title/tt1615147
Can anyone clarify? (Score:2)
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I think it's the horses? The horses give the coin some value?
I mean, why would they call it a stablecoin otherwise?
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Money market funds have assets highly correlated with the dollar, even when they break the buck the losses are inherently limited.
Crypto assets are correlated to all hell with each other but not with the dollar. Algorithmic stable coins rely on ponzi'ing in people looking for interest to maintain a peg on a correlated cryptocurrency downturn, until the cryptocurrency market has recovered its losses. If there are no suckers wanting to get in on the ponzi, the peg crashes and the losses will follow the genera
It's just fiat without a government (Score:1)
They are basically what the dollar would be if the dollar didn't have the US Government pointing a gun at everyone mandating their use for calculating and paying taxes. It's just fiat currency without a tax authority strong-arming people.
What people should be considering instead of these is something like Kinesis [kinesis.money] which is a stablecoin-like system based on gold and silver reserves. While those metals are manipulated like all commodities, they're infinitely preferable to the future of the USD and algorithmic
"Stable" coins are often not back by money (Score:3)
My current favorite crypto scam is that NFT infused pokemon clone that North Korea stole $600 mil from. It's literally an MLM run with slave labor from the Philippines. The way the scam works is you buy the stuff you need to make currency and pay people over in the Philippines a pittance to "play" the game to earn more currency to buy more currency so you can eventually sell it all to the next sucker who enters the game to do the same thing.
PC Gamer had an article about it, and yeah, it's a ponzi scheme / MLM. But then all crypto is. They're designed so "early adopters" make money and everyone else just preys there's more people downline.
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you clearly are upmodding yourself
no he's not, I am - because he is right.
cope and seethe
Does it really make a difference (Score:3)
And for the 100th time, crypto is money laundering and ponzi schemes. You know this, and it's why you get so defensive. I don't need FUD. I've got facts on my side. Sooner or later the whole scam will run out of new suckers and collapse, just like all ponzi schemes.
When will it happen? Well, right now the money laundering is keeping it going, but with the Russian sanctions it's only a matter of time. I suggest you get
That's an easy advice (Score:2)
As all the crypto bullshit is dangerous. Isn't it?
Any kind of crypto currency is dangerous (Score:1)
What does Matt Damon think? (Score:1)
I wanna know...
How to identify a stupid idea (Score:2)
Why would I use Lousy Imitation Dollar when I could just use real dollars?
Crypto (Score:1)
Choose: Stability or Decentralization (Score:2)
You can't have both. Many currencies are considered stable because the governmental entities behind them are centralized, long established and regulated. Stocks are tied to a single company. Again, centralized, but less established. Therefore, more risk.
You want decentralization, then you have to move into the realm of speculative assets. Also, it will also be creating a a platform that attracts money laundering and other illegal economic activities that will future undermine any stability because lack of c