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Stablecoins and Banks

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46 minutes ago, Wandering_Dog said:

The external value (this is a misuse of the term external value, we should be saying the value outside of some given system) will be almost exactly equal to the value in the system, just like Eurodollars, for example. 

No that's not true, if you don't have access to the system you can neither send nor receive any so it's a moot point.

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12 hours ago, Trickery said:

No that's not true, if you don't have access to the system you can neither send nor receive any so it's a moot point.

Banks creating Eurodollar deposits also don't have access to the system of reserves on which they are based, so by your logic they should have a value of 0, but they don't. You or I can create instruments based on assets or liabilities located anywhere, including basing an instrument on a stable coin (which is based on a basket of currencies, based on bank deposits, based on reserve deposits, based on a bank loan, based on a house, for example), even though we are not a part of the network with direct access to said stable coin.

For example, Bank_A connected to said stable coin network can have X stable coins on its balance sheet, and Bank_B not connected to the network can create Y stable coin IOUs for its customers to use because it feels reasonably confident that it can 'acquire rights' to some amount of those stable coins through Bank_A, and have those coins sent anywhere Customer_B needs those things sent (by Bank_A with instructions from Bank_B). Even though neither Bank_B or Customer_B are a part of the network, they can still create and use IOUs based on those instruments, and those instruments will have a non-zero value so long as people believe they do (Bank_A and Bank_B can come to agreements over their transmission and costs).   

So, I disagree, the "external value" as you use the term here, is not zero, and we have a wonderful example of a very similar system, Eurodollars, which consists of banks outside of the FRB system creating and paying commercial bank deposits to one another, called "dollars", despite the fact those banks may not have reserve accounts at the Fed, meaning they do not have access to the network of "stable coin" equivalents on which those deposits are based. In fact, a Eurodollar is a "stable coin", now that I think about it, one we've been using since 1950 :sarcastic:.  

Edited by Wandering_Dog

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4 hours ago, Trickery said:

You've just put what I said into 150 words @Wandering_Dog Instruments rely on trust and are no better than an IOU or as you put it "acquiring rights" so my statement stands.

You said:

"The problem I see with private stablecoins is they are no better than a messaging system because they have no external value."

And I said: 

"Eurodollars are very similar to a private stable coin which has an "external value" typically equal to the instrument they represent, the USD." 

Jesus man :sarcastic:

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6 hours ago, Wandering_Dog said:

You said:

"The problem I see with private stablecoins is they are no better than a messaging system because they have no external value."

And I said: 

"Eurodollars are very similar to a private stable coin which has an "external value" typically equal to the instrument they represent, the USD." 

Jesus man :sarcastic:

Yeah sorry I was drunk and distracted so getting back to my original statement I will try and clarify what I meant by no external value;  a private stablecoin can't transfer value out of the private system and within the private system the participants are using them just like an IOU because they represent actual fiat currency.

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1 minute ago, Trickery said:

Yeah sorry I was drunk and distracted so getting back to my original statement I will try and clarify what I meant by no external value;  a private stablecoin can't transfer value out of the private system and within the private system the participants are using them just like an IOU because they represent actual fiat currency.

Ok, so "what's the point of a bank coin if its backed by liabilities that banks are free to create" or along those lines. Sure, that makes sense. They could of course get together, sign an agreement, and use some fixed supply or rules-based DA for settlement. And, I think ILP technically makes it possible to "transfer out of the private system" without transferring it out of the system... 

At any rate, the point I wanted to get across was that you can use a settlement token on a private network, and you can use a liability to settle on a private network, and you can transfer these balances outside the network, and you can create other instruments based on instruments in the network without access yourself. It's all possible, and there are lots of different ways to achieve the same thing, whatever that thing may be, afaik.  

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2 hours ago, Wandering_Dog said:

At any rate, the point I wanted to get across was that you can use a settlement token on a private network, and you can use a liability to settle on a private network, and you can transfer these balances outside the network, and you can create other instruments based on instruments in the network without access yourself. It's all possible, and there are lots of different ways to achieve the same thing, whatever that thing may be, afaik.

But how does that make a stablecoin more useful than a ledger? Is it because  a stablecoin is a digital and immutable contract? If so a blockchain without a stablecoin could do the same job, it just seems like a solution looking for a problem.

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17 minutes ago, Trickery said:

But how does that make a stablecoin more useful than a ledger? Is it because  a stablecoin is a digital and immutable contract?

Is serves as a connection between ledgers, much like an ILP Connector, but with a different business/financial model.

The connection aspect is going to exacerbate a market downturn in the underlaying, it may also to a lesser degree amplify a market upturn.

The "benefit" is for folks who want to transact on a fiat ledger or "in fiat", but do so based upon value denominated in crypto. They could also be used as a partial hedge.

Edited by KarmaCoverage

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Just now, KarmaCoverage said:

Is serves as a connection between ledgers

But I thought the whole private stablecoin thing was....well.....private? So how does it connect between ledgers, does it go through some kind of bridging DA?

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18 minutes ago, Trickery said:

But I thought the whole private stablecoin thing was....well.....private? So how does it connect between ledgers, does it go through some kind of bridging DA?

When it creates new fiat, backed by an underlying digital asset. This is an expansion of the fiat money supply (fiat being the 2nd, non-digital ledger). 

When this fiat is spent it moves over to commercial bank ledgers, or to paper cash on Central Bank ledgers.

This is similar to how Commercial banks create new money supply, but the underlying asset is Reserves on the Central bank's balance sheet, instead of a DLT/blockchain ledger.

Edited by KarmaCoverage

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8 hours ago, Trickery said:

But how does that make a stablecoin more useful than a ledger? Is it because  a stablecoin is a digital and immutable contract? If so a blockchain without a stablecoin could do the same job, it just seems like a solution looking for a problem.

Some group of banks, lets say in the EU, Japan, and the US, enter an agreement and take some portion of their reserves (Euro, Yen, and Dollar deposits at their central banks) and promise not to touch them. They then create some amount of "stable coins" based on the amount of reserves they set aside on some network that presumably they control. This network is a shared ledger, replicating the role of multiple central bank ledgers, but its now consolidated and controlled by the banks and filled with a settlement asset based in part on the past behaviour of bank lending (credit creation) and the central banks' accomodativeness (reserve creation). The stable coins are account balances on the ledger of this new network.

A blockchain with some arbitrary amount of assets and governance system requires the banks to agree on the properties of that system. Not to mention the blockchain assets they create are in direct competition with governments, which reduces or eliminates gov control over monetary policy much in the way the Euro did for countries that adopted it. The stable coin solution, which isn't much of a solution, simply takes what they already use, central bank reserves, and makes it a bit simpler--consolidates multiple units of account into one common unit of account on rails that banks can adjust to their needs via software updates. 

I'm not sure why you're bringing up digital immutable contracts, in fact, what does that even mean? :sarcastic: And what does that have to do with stable coins?

 

  

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44 minutes ago, Wandering_Dog said:

The stable coin solution, which isn't much of a solution, simply takes what they already use, central bank reserves, and makes it a bit simpler--consolidates multiple units of account into one common unit of account on rails that banks can adjust to their needs via software updates. 

Oh for goodness sake! so you've basically agreed with what I said and then claim to have no understanding of what I said?

48 minutes ago, Wandering_Dog said:

I'm not sure why you're bringing up digital immutable contracts, in fact, what does that even mean? :sarcastic: And what does that have to do with stable coins?

 

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1 hour ago, Trickery said:

Oh for goodness sake! so you've basically agreed with what I said and then claim to have no understanding of what I said?

 

You said that a stable coin has a value of 0 outside the network its based, which didn't make sense--and I pointed that out with an example.

I personally think stable coins are a terrible idea, its a bank deposit of a bank deposit, which adds more stability issues to an already unstable system.

So we agree, I think, about the general idea of stable coins (Booo, bad!). But, you are saying a bunch of random things in support of a conclusion that don't appear to make sense in a broader context.    

 

 

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9 hours ago, Wandering_Dog said:

I'm not sure why you're bringing up digital immutable contracts, in fact, what does that even mean?

The enforcement of stable coin margin calls is coded into smart contracts. I believe mostly on Ethereum, hence "digital immutable contracts".

There is no way to short circuit a cascade of margins calls and collateral liquidation, so far as I can tell. :unsure:

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3 hours ago, KarmaCoverage said:

The enforcement of stable coin margin calls is coded into smart contracts. I believe mostly on Ethereum, hence "digital immutable contracts".

There is no way to short circuit a cascade of margins calls and collateral liquidation, so far as I can tell. :unsure:

You'll have to explain the mechanics behind a margin call on an instrument that isn't created on margin, I don't get it.... :sarcastic: Or do you mean people are using credit ("margin") stable coins to purchase other securities?

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