Which does what to the value of the assets in the collatteral pool ... which then in turn triggers selling of assets in the collateral pool ... which then does what to the value of assets in the collateral pool ...
Each collateralized debt position is independent. They do not use one large pool of collateral for all DAI. Each CDP is independently liquidated as the value of the collateral drops. Can liquidations trigger price drops in ETH? Yes, and that can cause a cascade of liquidations as the collateral value falls on various CDPs. But that just wipes more debt as it cascades. MakerDAO has responsible thresholds (150%) for liquidations. It's not without risks but it's one of the good eggs.
DAI is over collateralized - you lock up as collateral more than the value of the DAI you get back when DAI is created.
So let's say you deposit 20 eth at @ $1,000 USD per eth, which gives you a collateral value of $20,000. You create $10,000 DAI which you can then do what you want with.
If the price of ETH goes down, and the value of your collateral drops to $14,500, less than 150% collateral, then DAI automatically holds an auction on your collateral, selling it to the highest bidder. Let's say it sells it for $14,000, that's a $500 profit for the purchaser, and a $4,000 profit to DAI. The looser here is you, who still has the $10,000 DAI, but has lost $14,500 in ETH.
Next time, you'll either top up, or pay back your vault before it gets to this point.
This works until you get a flash crash, or a situation where there no buyers can be found - then all hell breaks loose.
Same thing happened with the mortgage backed securities - even if they had some value (and everyone admitted they did) nobody could be found to buy them - hence "toxic" so the government stepped in and became the buyer of last resort.
> maintained its peg through a 94% drop in the ETH price over the course of 2018, despite being backed only by ETH at the time
That was a different market. We’ve experimented this with currency boards. Holding reserves in anything but your anchor currency is asking for trouble. Making public what your reserves are invites specific arbitrages.
The added fun with crypto is that the monetary base of ETH is tiny compared to most reserve currencies. So the instability point for DAI is far smaller, in terms of triggering a fire sale, than for a real currency board.
Side note: I guess we’re about 15 years out from 2008, the minimum term for a generational divide, and so I shouldn’t be surprised about people saying 150% collateral is pretty much safe again. Mortgages then. Ether now. Russian bonds before.
Total value in Dai in 2018 (it launched in dec 2017) was < USD200mil - in the period where ETH lost most of its value (Q1 2018) the total value of dai issued was ~ USD 50mil (to ETH's ~75bn market cap).
Its ~ USD 7bn now (vs ETH 220bn market cap - and not the only stable coin holding eth ...).
3% is a large enough fraction of value to induce fire sales at less than a 50% price drop. (I don't know precisely where below 50%. Nobody does.)
Every shaky currency board in the history of pegged currencies hobbled through attacks when hard currency was easy in the absence of a solvency crisis. Let's assume Tether doesn't de-peg and Celsius's ETH loan [1] doesn't spark a run. That leaves rates. In 2018, we had relatively easy money, taper tantrums aside. Today, we don't. And hard money is only getting tighter.
It's not even worse. MakerDAO (creators of DAI) is a solid protocol. DAI is backed by collateralized debt position with automated liquidations. if the value of a CDP holders assets drop below a threshold, they get liquidated automatically. DAI was born in 2017 when ETH was $1450 and survived the drawdown to $80.
If you put in $3K of ETH and borrow $1500, then your ETH collateral falls to 150% of your loan ($2275), you will get liquidated, and your collateral will be sold immediately to pay your debt. These mechanics are fully on-chain and fully automated by keepers (a liquidation can be triggered by anyone and they earn penalty fees for doing so).
The system is not without risks, but those are well known to all.
You are right it is not worse, because the protocol is known, flaws and all, and not just one guy sending his personal account 50mil every day because its a bull market and they can get away with it or cashing out whales while regular joe gets 1 cent in the dollar.
Something doesn't make sense to me here. If it's automatically liquidating but ALSO it's the thing propping up a bunch of cryptocurrencies, it feels like there's a crash that's inevitable here. As the value drops, it sells automatically, which drops the value further, which causes more sell-off. What's stopping that from happening?
It's not the thing propping up crypto prices. DAI is relatively small ($6.5B mcap), DAI is also partly backed by USDC [1], which is backed by cash and US government bonds (held at Circle) so it would be extremely difficult for DAI to lose collateral backing faster than keepers could liquidate positions. Does DAI have an influence on the $1T crypto industry? Of course, but its liquidity pales in comparison to USDC, USDT, and BUSD (~$100B between them). If the market is crashing, it's doubtful DAI is the culprit (as it's actually a solid, battle-tested protocol that already lived through the Covid crash and '18 and '19 severe drawdown and many other trying market scenarios).
But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market.
So you must be against all synthetics and half the ETFs on the stock market. Interesting take and unironically I know some people who argue this with stocks too. Or fiat currency even - what is the collateral there?
> So you must be against all synthetics and half the ETFs on the stock market
11% of the ETF market is synthetic, and it is effectively illegal to launch one in the US now.
So it appeaers that its a) not half the ETFs and b) the regulator aggrees.
ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited.
The SPX etf holds the actual constituent shares 1:1 with what they are redeemable as so it is a terrible example from your side. It doesnt hold a bunch of chinese equities, or discount miami property on a punt that it will do better than their underlying asset.
Stable coins have (not Dao as I agree they have a very nice fixed protocol) taken their 1:1 dollar backing, punted it on crypto, and when it went up and they were overcollateralised - paid themselves the excess personally. When crypto has gone down in value closed their eyes and eventually gone bust.
Most of the money is tracking indices, your 11% figure obviously can't be true because even most physically replicating ETFs don't 1-1 hold all of the assets they purport to hold according to the index. That's called "sampling". Fully replicating ETFs are rarer and more expensive for obvious reasons.
You can see the figures for the EU here¹, it's the exact opposite of what you're saying. Fully physically replicating ETFs are in the minority. The most common category is fully synthetic and together with the physically sampling ones and more exotic categories like derivative based, non-fully physically replicating ETFs constitute almost 3/4 of the entire market. The US is going to be similar but I invite you to look it up yourself.
The federal reserve [0] and nasdaq [1] disagrees with your assesement - 2% of global etf assets are held in synthetic etfs - almost entirely in Europe and all but extinct in the US.
Sampling doesn’t imply synthetics. It just means that at the small end of their index they don’t bother to hold everything because the cost of doing so is too high. This is only an issue with niche ETFs or total market ETFs where the tail end of the index represents some tiny minuscule fraction of the fund.
>ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited.
That is demonstrably false for the majority of ETFs, just read the above link. Holding some of the thing is not the same as being fully convertible. The user doesn't understand what sampling is and fixates on the word "synthetic" but it wasn't the original claim that most ETFs are fully synthetic in the first place. They don't have to be synthetic to not be 1-1 backed by all index constituents.
That isn't a claim about this being good or bad, many investors consider it acceptable risk.
the equivalent would be the stable coin having $0.9994 in a bank account for every stable dollar they mint not $0 (the $0.0006 was really the important bit in all this)
No, DAI is fully collateralized. It's not without risks but they're completely auditable, all DAI is fully backed with responsible thresholds for liquidation. DAI bears more resemblance to eurodollars (debt based instruments that trade like cash overseas) than to backed stable coins. Except again DAI is fully transparent, and built on automated, immutable, audited, on-chain parameters:
I only discovered algorithmic stablecoins recently and I'm very curious about DAI: somehow they're there since a long time and they've been fine during turbulent ETH price action.
But DAI are basically very tied to USDC and it's not clear at all should Coinbase go bankrupt if they'd be using the assets backing the USDC to pay their debt or not. In a recent Coinbase report they said they may use customers' funds to pay back their debt should they go bankrupt but they said nothing about USDC.
I know USDC aren't directly emitted by Coinbase but by a joint-venture Coinbase is "only" part of but still sounds scary to me.
So it's not clear at all to me that DAI would still work in the face of Coinbase going belly up (COIN is at $48 before the market opens, that's -86% compared to its all time high so things aren't exactly smooth sailing and all the crypto exchanges are feeling the heat right now).
So, yup, DAI is more than fully collateralized, but it's relying on Coinbase / Circle not doing anything shady with the assets backing the USDC stablecoin.
I've been reading up on stablecoins lately, mostly Dai as it seems like the most stable of the few.
This is the first time I hear it being associated/connected to Coinbase/USDC in any way. Could you share how you're making that connection? It went right past me somehow.
DAI works much better. But I wouldn't hold DAI because I'd have to lock much more of my money into it than it is worth, and keep checking for crashes in case I have to add more collateral.
But it acts as a stabilizer for the Ethereum network, so power to them.
USDC by Circle, holds only cash and US government bonds. They are considered the safest stable coin. They are on-shore in the U.S. and registered as a money transmitter. They do get frequent audits but that being said USDC itself is not FDIC insured, so there's still higher risk than a bank account.
Then there are truly collateralized stable coins, like DAI, which work off an automated system of collateralized on-chain deposits. DAI is borrowed into existence up to a limit. If a borrower's collateral gets within a threshold of going under water (depending on collateral risk params, could be 150%), they can get liquidated and their assets are sold to cover their debt. DAI is the most established of the "decentralized" stable coins. It was formed in 2017 by MakerDAO. All CDPs are on chain, and auditable.
USDD literally launched within the past 60 days, right about when UST was going bust. These coins are algo ponzis that are not fully backed and promise exorbitant interest rates which are completely unsustainable.
No, USDC doesn't get audits, and they stopped publishing their reserve breakdown in their attestations; compare September 2021 (page four) as an example against the more recent ones.
> Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar denominated reserves that back the USDC tokens in circulation.
> However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
It's not the "same trick", because they're not doing any of the shit Tether is doing.
Honestly it's wildly irresponsible to just claim without evidence that USDC isn't what it claims to be. With Tether, there was tons of evidence. With USDC, there's absolutely zero.
Also, "attestations" aren't meaningless. They're not full audits, but they're not meaningless.
To be clear, I'm referring to "calling attestations audits". Both Tether and USDC are using that same trick.
There are two options; they don't know the difference (incompetent), or they know the difference and still choose to publicly conflate the two (fraudulent). Neither is good.
> Also, "attestations" aren't meaningless. They're not full audits, but they're not meaningless.
They are meaningless for purposes of "does this organization control the money they claim to control".
Attestations are not meaningless when determining whether or not something an organization claims as true is true.
It’s just a talking point by anti-crypto to claim otherwise. Attestations are used for similar purposes all the time, but only in crypto is it “not good enough”.
> Attestations are not meaningless when determining whether or not something an organization claims as true is true.
Well, sure. The problem is the claims are too narrow to be useful.
"Here's my bank balance" - roughly what Tether and other attest to - isn't even enough info for me to get a mortgage. The bank will want substantially more info; they want to know how I got that bank balance, how much I owe to other people, whether I'm employed to continue building it, etc.
Again, Tether attested to bank balances, and those attestations were truthful, but they entirely lacked the very important context of "we didn't have money yesterday, and we won't have money tomorrow".
> “Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability,” said H.E. Justin Sun, Founder of TRON. “The $10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.”
Nothing is 100% safe, but >150% overcollateralization is a rather decent buffer, even after accounting for crypto volatility. As a comparison, banks usually operate with less than 5% equity, and that's based on rather optimistic book values, as indicated by often significantly lower market capitalizations.
> Gemini and the GUSD benefit from the direct supervision and regulatory oversight of the New York State Department of Financial Services (NYDFS). Gemini began issuing Gemini Dollars on September 9, 2018, making the GUSD among the first regulated stablecoins in the world.
> Each GUSD corresponds to a U.S. dollar held by Gemini in accounts at U.S. FDIC-insured bank accounts and money market funds holding short-term U.S. treasury bonds and maintained at a custodian. The cash portion of these GUSD reserves may be eligible for FDIC “pass through” insurance for Gemini customers, in the event of the failure of a bank holding the U.S. dollar deposit portion of the GUSD reserves.
The page: "Review the Gemini dollar reserve-funds independent accountant audit reports..."
The "audit": "Our examination was conducted in accordance with ATTESTATION standards established by the American Institute of Certified Public Accountants."
Attestations are not audits; they are different in very important ways. "I have $1,000 in the bank" is an attestation. "I have $1,000 in the bank, but I owe $2,000 in mortgage payments tomorrow" is an audit.
Tether got caught pulling this trick; they'd get Bitfinex to transfer money into their accounts the day before an attestation, and move it out the day after.
> However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
The evidence for an attestation is getting a look at bank balances.
An audit would determine where the money came from, who has claims on it, etc.
> So far you have not provided any evidence about Gemini lying, just whataboutism about Tether.
Calling an attestation an audit is a lie. Tether provides a concrete example of why attestations are not sufficient; an audit would've revealed the shenanigans with transfers in and out, and that's likely why they never completed one despite promising regular audits on their home page for years.
As stated in the report, the "Management Assertion" was examined and "found to be fairly stated in all material respects".
The "Management Assertion" is described in Section II, containing among other things "segregated specifically for the US dollars that correspond to Gemini dollars".
So to my reading the BPM accounting firm, which is in top 5 Bay Area accounting firms, agrees that the Gemini dollars are backed by segregated dollars. You should well known what segregated means.
"We have $1B in the bank account at 9am on 6/13/2022" is a management assertion. It can be correct. It can be entirely true, and verifiable! An accounting firm will happily attest to its truthfulness.
An audit might reveal that the $1B is someone else's money.
Segregated means that the company can not touch that money except to return it to clients. That's law. So it can't be "someone else's money" by law. And the bank holding this segregated money is also complied by law.
Segregated means they've separated customer funds and company funds.
Nothing prevents them from taking $1B from a friendly (or closer, as in the Tether/Bitfinex scenario) exchange as a "customer" for a day to pad out the balance. Again, stablecoins have literally been caught doing exactly this.
Your logic applies to all US retail exchanges then, because they are no more audited than Gemini is here. No one traces every single dollar going into/outof the ETrade/Charles Schwab/... segregated accounts. So according to your logic they are all frauds.
Every audit is partly built on attestation, though.
If my company has $100 in the bank and owes $50 to our gardener based on a handshake agreement, how is an auditor supposed to find out about the debt except by asking me?
Just because it hasn't been entered into the accounts, doesn't mean we don't have a legal obligation to pay the guy.
Shady dealings in this area can e.g. get you banned from being a company director in the future - but that's hardly a deterrent in the cryptocurrency space, where a fraud can leave you set for life.
> Every audit is partly built on attestation, though.
Sure. A house is built on a foundation, but a foundation is not a house.
> If my company has $100 in the bank and owes $50 to our gardener based on a handshake agreement, how is an auditor supposed to find out about the debt except by asking me?
In the Tether case, by going "Hey, why'd you get hundreds of millions of dollars yesterday? Who's it from?" It stood out to the NY AG, it'd have stood out to an auditor.
> The TRON DAO Reserve is currently holding 10,500 BTC, 240 million USDT, and 1.9 billion TRX in the reserve account, on top of the 8.29 billion TRX already in the burning contract. The real-time collateral ratio is now over 200% — a total $1.37 billion of assets backing the 667 million USDD in circulation.
Collateralization won't save you if the collateral isn't in USD.
Instead of spending my dollars on a speculating on shitcoins, I buy up high-quality instruments. Ex: I-Bonds are yielding 9% right now due to inflation.
If you want inflation protection, there are inflation-protected securities to buy. And they're doing really well right now.
I-Bonds are not a high-quality instrument. They are a small gift from the government. Each person is only allowed to buy $10k. That's hardly enough to qualify as an investment vehicle.
You see how stupid this "short them" argument is? If you don't like them, then short them.
------
If you don't like them, that's fine. I'll just collect my 9% this year while BTC is... what? Down 18% in a day? You should have sold your BTC at the January high and transferred to higher-quality instruments, like I-Bonds or TIPS
Sorry, I don't understand. I-Bonds are almost guaranteed to hold their value so shorting doesn't make sense. Maybe you don't know what short-selling is, but it's when you take a position that the price of an asset will go down. The issue with I-Bonds is not they their value will decrease. The issue is that they are a government program designed to offer a small amount of relief in times of high inflation. The government limits I-Bond purchases to $10,000 a year, and their yield is only good in years with high inflation.
> You see how stupid this "short them" argument is? If you don't like them, then short them.
I mean this in the politest way possible, but you should consider that you don't fully understand types of investments and short selling if you think the statement "short I-bonds" is equivalent to "short crypto" and if you think that I-Bonds can form a major part of an investment strategy.
"Short Crypto" is a terrible meme counter-argument, that ignores the large possibility of a long-term, sideways cryptomarket.
While cryptocoins move sideways, low-risk investments like TIPS or I-Bonds will outperform them. Cryptocoins don't have to "go down" for them to be a terrible investment. Even a "sideways movement" is enough to make them a bad investment.
---------
As long as lower risk options (such as TIPS and I-bonds) exist that have higher gains than Cryptocoin (definitely the case this year), then I "win" relative to you with my bond-heavy portfolio. No shorting of cryptocoin needed.
The market can stay irrational longer than most can stay solvent. In this case Crypto has been on a tear for a decade and legitimate criticism is shouted down by the raw gains even when rationally Crypto has minimal real world value.
One thing that cryptocurrencies have done, is highlighting how little knowledge of the Western financial structures exists, among a population of people willing to risk their shirt in the comfort of their own homes.
And why should they know it? Just like how I can't understand the exact side-effects of every industrial chemical that I might come into contact with, I expect the government to offer some protection against these things for an unsuspecting population.
Well, you’re not running a home chemistry lab, I suspect.
Whereas a significant percentage of crypto enthusiasts believe they’re inventing the future of money, without the slightest idea of the protections the government offers their deposits in the status quo - and happily leaving this for the decidedly less robust protections of a nacent industry that has developed a name for scams and people losing their shirts
They should know it, because there is a much larger element of "DYOR" (Do your own research) thinking among DeFi users than among regular people putting their money into trad-Fi brokers that are heavily regulated.
In deFi, information asymmetry is a feature, not a bug.
People keep saying that, but billions more will be lost this week as the next crypto exchanges fail. Most people were not doing research. Nothing paying 20% returns will last. Yet millions of people put their money into investments like this.
What’s the situation these days with GUSD? I have single-digit thousands in an interest account (not defi) in that currency and it seems to be holding steady. Any reason I should be concerned, aside from the custodian company going belly up?
In this climate I wouldn’t put any money in an interest bearing crypto organization (that i wasn’t willing to lose).
They’re very poorly regulated and liable to be doing stupid things that will lose you all your money. The only thing you have to go on is repetition and hope, the rewards are probably not worth the risk.
GUSD seems to be about as safe as USDC (1:1 backing in banks) but careful where you try to earn interest on them. Gemini Earn hands over your GUSD to Genesis Trading, with no guarantee you get anything back if they implode. DeFi yield in this case is actually safer on a platform like Aave but with safety comes low APY (~1%).
People in the HNews community have been pushing for the ability for unaccredited investors to be able to put money into early-stage startups for years. I think the situation with crypto-currency* is a preview of the upsides and downsides of what that would look like. Now - crypto is worse because of the constant theft - but even without the crime you can clearly see the upsides and the downsides.
The upside is that anyone can get in on the "ground floor" of these projects and crypto currency - for all its flaws - does do a good job of securely transferring 'ownership.' Fake crypto is not, as far as I know, a problem.
The downside is obvious for all to see: it's difficult to figure out if a technically complicated product is worth investing in. It's doubly difficult when the people working on those projects will get an immediate monetary reward for attracting investment.
I do think it's unfair that only the rich can bet on early-stage startups, but it's impossible for me to ignore the anecdotes of naive investors losing their savings on poor crypto investments. I'm not sure what a better system would look like - perhaps one where investments are taxed to create an insurance fund. Though the downsides to that are obvious as well.
There are lots of projects that describe themselves as a "cryptocurrency" that are lying by some definition! That, imo, goes back to the difficulty in assessing the technical rigor of the projects.
I more meant that I do not have the impression that people selling fake bitcoins (or eth or whatever other coins people buy) is a problem. If you want to buy a bitcoin, it is easy to do that in a verifiable way.
101 comments
[ 4.2 ms ] story [ 156 ms ] threadTheir issuers are centralized, and are supposed to be holding fiat for users, propping up the peg when worse comes to worst.
But they can't resist the temptation of making the fractional reserve a bit too "fractional". And there is no way of auditing those reserves.
What about Stablecoins like Dai, are those also a scam, even if they are not centralized?
Works great if the collateral assets go up in value against the dollar. But if say the $3000 of ETH you had as collateral goes to say $1000 ...
Its like taking out a mortgage using your locked up snowflake stock as collateral.
So let's say you deposit 20 eth at @ $1,000 USD per eth, which gives you a collateral value of $20,000. You create $10,000 DAI which you can then do what you want with.
If the price of ETH goes down, and the value of your collateral drops to $14,500, less than 150% collateral, then DAI automatically holds an auction on your collateral, selling it to the highest bidder. Let's say it sells it for $14,000, that's a $500 profit for the purchaser, and a $4,000 profit to DAI. The looser here is you, who still has the $10,000 DAI, but has lost $14,500 in ETH.
Next time, you'll either top up, or pay back your vault before it gets to this point.
Same thing happened with the mortgage backed securities - even if they had some value (and everyone admitted they did) nobody could be found to buy them - hence "toxic" so the government stepped in and became the buyer of last resort.
That was a different market. We’ve experimented this with currency boards. Holding reserves in anything but your anchor currency is asking for trouble. Making public what your reserves are invites specific arbitrages.
The added fun with crypto is that the monetary base of ETH is tiny compared to most reserve currencies. So the instability point for DAI is far smaller, in terms of triggering a fire sale, than for a real currency board.
Side note: I guess we’re about 15 years out from 2008, the minimum term for a generational divide, and so I shouldn’t be surprised about people saying 150% collateral is pretty much safe again. Mortgages then. Ether now. Russian bonds before.
Rates were low. There is less dumb money now. And its quantity will predictably decline over the coming 12 to 18 months.
Its ~ USD 7bn now (vs ETH 220bn market cap - and not the only stable coin holding eth ...).
https://bravenewcoin.com/insights/maker-price-analysis-multi...
3% is a large enough fraction of value to induce fire sales at less than a 50% price drop. (I don't know precisely where below 50%. Nobody does.)
Every shaky currency board in the history of pegged currencies hobbled through attacks when hard currency was easy in the absence of a solvency crisis. Let's assume Tether doesn't de-peg and Celsius's ETH loan [1] doesn't spark a run. That leaves rates. In 2018, we had relatively easy money, taper tantrums aside. Today, we don't. And hard money is only getting tighter.
[1] https://www.bloomberg.com/news/articles/2022-06-13/bitcoin-s...
If you put in $3K of ETH and borrow $1500, then your ETH collateral falls to 150% of your loan ($2275), you will get liquidated, and your collateral will be sold immediately to pay your debt. These mechanics are fully on-chain and fully automated by keepers (a liquidation can be triggered by anyone and they earn penalty fees for doing so).
The system is not without risks, but those are well known to all.
But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market.
[1] https://daistats.com/#/
In the end maybe only gold can keep you safe ;)
11% of the ETF market is synthetic, and it is effectively illegal to launch one in the US now.
So it appeaers that its a) not half the ETFs and b) the regulator aggrees.
ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited.
The SPX etf holds the actual constituent shares 1:1 with what they are redeemable as so it is a terrible example from your side. It doesnt hold a bunch of chinese equities, or discount miami property on a punt that it will do better than their underlying asset.
Stable coins have (not Dao as I agree they have a very nice fixed protocol) taken their 1:1 dollar backing, punted it on crypto, and when it went up and they were overcollateralised - paid themselves the excess personally. When crypto has gone down in value closed their eyes and eventually gone bust.
You can see the figures for the EU here¹, it's the exact opposite of what you're saying. Fully physically replicating ETFs are in the minority. The most common category is fully synthetic and together with the physically sampling ones and more exotic categories like derivative based, non-fully physically replicating ETFs constitute almost 3/4 of the entire market. The US is going to be similar but I invite you to look it up yourself.
¹ https://www.esrb.europa.eu/pub/pdf/asc/esrb.asc190617_9_cane...
[0] https://www.federalreserve.gov/econres/notes/feds-notes/synt... [1] https://www.nasdaq.com/articles/what-are-synthetic-etfs-2021...
> can't be true because even most physically replicating ETFs don't 1-1 hold all of the assets they purport to hold according to the index
Unfortunately they do hold the assets they purport to hold.
Nobody uses sampling for, say, an S&P500 fund.
>ETFs, hold the thing they are convertable to and are audited. the equivalent would be the stable coin having $1 in a bank account for every stable dollar they mint ... and be willing to be audited.
That is demonstrably false for the majority of ETFs, just read the above link. Holding some of the thing is not the same as being fully convertible. The user doesn't understand what sampling is and fixates on the word "synthetic" but it wasn't the original claim that most ETFs are fully synthetic in the first place. They don't have to be synthetic to not be 1-1 backed by all index constituents.
That isn't a claim about this being good or bad, many investors consider it acceptable risk.
1:0.9994
You happy?
https://www.marketwatch.com/investing/fund/spy/holdings
And to further correct the reccord:
the equivalent would be the stable coin having $0.9994 in a bank account for every stable dollar they mint not $0 (the $0.0006 was really the important bit in all this)
https://www.investopedia.com/articles/investing/111715/how-v...
The very fund you linked is exactly not fully replicating. Meaning some of the stocks from the index aren't in it.
Which stocks specifically? Their daily reporting has them owning every stock in the index.
https://www.ssga.com/us/en/intermediary/etfs/library-content...
https://daistats.com/
But DAI are basically very tied to USDC and it's not clear at all should Coinbase go bankrupt if they'd be using the assets backing the USDC to pay their debt or not. In a recent Coinbase report they said they may use customers' funds to pay back their debt should they go bankrupt but they said nothing about USDC.
I know USDC aren't directly emitted by Coinbase but by a joint-venture Coinbase is "only" part of but still sounds scary to me.
So it's not clear at all to me that DAI would still work in the face of Coinbase going belly up (COIN is at $48 before the market opens, that's -86% compared to its all time high so things aren't exactly smooth sailing and all the crypto exchanges are feeling the heat right now).
So, yup, DAI is more than fully collateralized, but it's relying on Coinbase / Circle not doing anything shady with the assets backing the USDC stablecoin.
This is the first time I hear it being associated/connected to Coinbase/USDC in any way. Could you share how you're making that connection? It went right past me somehow.
But it acts as a stabilizer for the Ethereum network, so power to them.
https://www.circle.com/en/usdc
Then there are truly collateralized stable coins, like DAI, which work off an automated system of collateralized on-chain deposits. DAI is borrowed into existence up to a limit. If a borrower's collateral gets within a threshold of going under water (depending on collateral risk params, could be 150%), they can get liquidated and their assets are sold to cover their debt. DAI is the most established of the "decentralized" stable coins. It was formed in 2017 by MakerDAO. All CDPs are on chain, and auditable.
https://daistats.com/#/
USDD literally launched within the past 60 days, right about when UST was going bust. These coins are algo ponzis that are not fully backed and promise exorbitant interest rates which are completely unsustainable.
https://www.centre.io/usdc-transparency
> Top five accounting services firm Grant Thornton LLP issues attestations each month on the US dollar denominated reserves that back the USDC tokens in circulation.
Same trick Tether pulled for years.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
Honestly it's wildly irresponsible to just claim without evidence that USDC isn't what it claims to be. With Tether, there was tons of evidence. With USDC, there's absolutely zero.
Also, "attestations" aren't meaningless. They're not full audits, but they're not meaningless.
To be clear, I'm referring to "calling attestations audits". Both Tether and USDC are using that same trick.
There are two options; they don't know the difference (incompetent), or they know the difference and still choose to publicly conflate the two (fraudulent). Neither is good.
> Also, "attestations" aren't meaningless. They're not full audits, but they're not meaningless.
They are meaningless for purposes of "does this organization control the money they claim to control".
It’s just a talking point by anti-crypto to claim otherwise. Attestations are used for similar purposes all the time, but only in crypto is it “not good enough”.
Well, sure. The problem is the claims are too narrow to be useful.
"Here's my bank balance" - roughly what Tether and other attest to - isn't even enough info for me to get a mortgage. The bank will want substantially more info; they want to know how I got that bank balance, how much I owe to other people, whether I'm employed to continue building it, etc.
Again, Tether attested to bank balances, and those attestations were truthful, but they entirely lacked the very important context of "we didn't have money yesterday, and we won't have money tomorrow".
The entire concept of attestations isn't in question here, only how Tether's attestation doesn't line up with its other actions.
edit: Tron itself bragged about their overcollateralization. https://medium.com/@usddio/usdd-upgrades-into-the-first-over...
> “Spearheading the Stablecoin 3.0 era, the upgraded, over-collateralized USDD will add more diversified features to underpin its stability,” said H.E. Justin Sun, Founder of TRON. “The $10 billion reserves pledged by the TDR will enable USDD to become the most reliable decentralized stablecoin with the highest collateral ratio in blockchain history. Currently, the 200%+ collateral ratio offers USDD a very strong safety net.”
Oof, I remember people saying this before 2008.
> Gemini and the GUSD benefit from the direct supervision and regulatory oversight of the New York State Department of Financial Services (NYDFS). Gemini began issuing Gemini Dollars on September 9, 2018, making the GUSD among the first regulated stablecoins in the world.
https://www.gemini.com/cryptopedia/gusd-stablecoin-gemini-do...
> Each GUSD corresponds to a U.S. dollar held by Gemini in accounts at U.S. FDIC-insured bank accounts and money market funds holding short-term U.S. treasury bonds and maintained at a custodian. The cash portion of these GUSD reserves may be eligible for FDIC “pass through” insurance for Gemini customers, in the event of the failure of a bank holding the U.S. dollar deposit portion of the GUSD reserves.
https://www.gemini.com/dollar
https://www.gemini.com/dollar
The page: "Review the Gemini dollar reserve-funds independent accountant audit reports..."
The "audit": "Our examination was conducted in accordance with ATTESTATION standards established by the American Institute of Certified Public Accountants."
Attestations are not audits; they are different in very important ways. "I have $1,000 in the bank" is an attestation. "I have $1,000 in the bank, but I owe $2,000 in mortgage payments tomorrow" is an audit.
Tether got caught pulling this trick; they'd get Bitfinex to transfer money into their accounts the day before an attestation, and move it out the day after.
https://ag.ny.gov/press-release/2021/attorney-general-james-...
> However, the very next day, on November 2, 2018, Tether began to transfer funds out of its account, ultimately moving hundreds of millions of dollars from Tether’s bank accounts to Bitfinex’s accounts. And so, as of November 2, 2018 — one day after their latest ‘verification’ — tethers were again no longer backed one-to-one by U.S. dollars in a Tether bank account.
Is not just a rubber stamp.
So far you have not provided any evidence about Gemini lying, just whataboutism about Tether.
An audit would determine where the money came from, who has claims on it, etc.
> So far you have not provided any evidence about Gemini lying, just whataboutism about Tether.
Calling an attestation an audit is a lie. Tether provides a concrete example of why attestations are not sufficient; an audit would've revealed the shenanigans with transfers in and out, and that's likely why they never completed one despite promising regular audits on their home page for years.
The "Management Assertion" is described in Section II, containing among other things "segregated specifically for the US dollars that correspond to Gemini dollars".
So to my reading the BPM accounting firm, which is in top 5 Bay Area accounting firms, agrees that the Gemini dollars are backed by segregated dollars. You should well known what segregated means.
An audit might reveal that the $1B is someone else's money.
Segregated means that the company can not touch that money except to return it to clients. That's law. So it can't be "someone else's money" by law. And the bank holding this segregated money is also complied by law.
https://financialit.net/blog/segregated-accounts/why-fintech...
Nothing prevents them from taking $1B from a friendly (or closer, as in the Tether/Bitfinex scenario) exchange as a "customer" for a day to pad out the balance. Again, stablecoins have literally been caught doing exactly this.
I know, I know, whatabout Tether.
Which is why SIPC exists. https://en.wikipedia.org/wiki/Securities_Investor_Protection...
(I guarantee you Schwab undergoes full audits, not just attestations. Here's one: https://www.sec.gov/Archives/edgar/data/87634/00000876341700...)
If my company has $100 in the bank and owes $50 to our gardener based on a handshake agreement, how is an auditor supposed to find out about the debt except by asking me?
Just because it hasn't been entered into the accounts, doesn't mean we don't have a legal obligation to pay the guy.
Shady dealings in this area can e.g. get you banned from being a company director in the future - but that's hardly a deterrent in the cryptocurrency space, where a fraud can leave you set for life.
Sure. A house is built on a foundation, but a foundation is not a house.
> If my company has $100 in the bank and owes $50 to our gardener based on a handshake agreement, how is an auditor supposed to find out about the debt except by asking me?
In the Tether case, by going "Hey, why'd you get hundreds of millions of dollars yesterday? Who's it from?" It stood out to the NY AG, it'd have stood out to an auditor.
https://medium.com/@usddio/usdd-upgrades-into-the-first-over...
> The TRON DAO Reserve is currently holding 10,500 BTC, 240 million USDT, and 1.9 billion TRX in the reserve account, on top of the 8.29 billion TRX already in the burning contract. The real-time collateral ratio is now over 200% — a total $1.37 billion of assets backing the 667 million USDD in circulation.
Collateralization won't save you if the collateral isn't in USD.
Edit: But knowing WHEN to short it is crucial. Otherwise you drown in interest fees during the short.
Instead of spending my dollars on a speculating on shitcoins, I buy up high-quality instruments. Ex: I-Bonds are yielding 9% right now due to inflation.
If you want inflation protection, there are inflation-protected securities to buy. And they're doing really well right now.
You see how stupid this "short them" argument is? If you don't like them, then short them.
------
If you don't like them, that's fine. I'll just collect my 9% this year while BTC is... what? Down 18% in a day? You should have sold your BTC at the January high and transferred to higher-quality instruments, like I-Bonds or TIPS
> You see how stupid this "short them" argument is? If you don't like them, then short them.
I mean this in the politest way possible, but you should consider that you don't fully understand types of investments and short selling if you think the statement "short I-bonds" is equivalent to "short crypto" and if you think that I-Bonds can form a major part of an investment strategy.
It is for the purposes of this discussion.
"Short Crypto" is a terrible meme counter-argument, that ignores the large possibility of a long-term, sideways cryptomarket.
While cryptocoins move sideways, low-risk investments like TIPS or I-Bonds will outperform them. Cryptocoins don't have to "go down" for them to be a terrible investment. Even a "sideways movement" is enough to make them a bad investment.
---------
As long as lower risk options (such as TIPS and I-bonds) exist that have higher gains than Cryptocoin (definitely the case this year), then I "win" relative to you with my bond-heavy portfolio. No shorting of cryptocoin needed.
Whereas a significant percentage of crypto enthusiasts believe they’re inventing the future of money, without the slightest idea of the protections the government offers their deposits in the status quo - and happily leaving this for the decidedly less robust protections of a nacent industry that has developed a name for scams and people losing their shirts
In deFi, information asymmetry is a feature, not a bug.
As for whether your CeFI interest account is safe... Well, I hope it isn't Celcius.
They’re very poorly regulated and liable to be doing stupid things that will lose you all your money. The only thing you have to go on is repetition and hope, the rewards are probably not worth the risk.
The upside is that anyone can get in on the "ground floor" of these projects and crypto currency - for all its flaws - does do a good job of securely transferring 'ownership.' Fake crypto is not, as far as I know, a problem.
The downside is obvious for all to see: it's difficult to figure out if a technically complicated product is worth investing in. It's doubly difficult when the people working on those projects will get an immediate monetary reward for attracting investment.
I do think it's unfair that only the rich can bet on early-stage startups, but it's impossible for me to ignore the anecdotes of naive investors losing their savings on poor crypto investments. I'm not sure what a better system would look like - perhaps one where investments are taxed to create an insurance fund. Though the downsides to that are obvious as well.
As it happens, crypto-less cryptocurrency is very much possible as demonstrated by the OneCoin scam: https://en.wikipedia.org/wiki/OneCoin
https://www.fool.com/the-ascent/cryptocurrency/articles/what...
I more meant that I do not have the impression that people selling fake bitcoins (or eth or whatever other coins people buy) is a problem. If you want to buy a bitcoin, it is easy to do that in a verifiable way.