Stablecoins are crypto currency that are supposed to maintain a stable 1:1 peg to the USD because they are backed by USDs and short-term government debt (like a money market fund).
I just don’t get it.
What’s the point? If someone wants to make a payment in USDs, why not just use USDs? Why use a crypto “coin” at all?
Wendy
Dear Wendy
There are fees on larger transactions.
Initially something like buying a house has a 5% commission. But conceivably if the transaction was btc the gas would be lower. Really apples to oranges but that’s where this leads with larger transactions.
Stablecions take the cost of going from usd to btc lower.
If you gave 50k usd to charity w btc instead of visa the charity would have more of the 50k.
If you gave the charity an ETF electronic check, they get 100% of the $50k usd, too. And you’d have FDIC insurance on the money while it’s in your bank account.
The only reason to accept the hassles of using bitcoin or stable coin is if you’re involved in criminal activity.
intercst
To hide it from snoopy governments.
The Captain
They can be custodised, and held as cash-equivalent at crypto exchanges with less-than-stellar creditworthiness, without incurring massive counterparty risk.
So how come all charities haven’t gone to accepting Bitcoin donations? I’ll save you the answer. Because the donor has to go from USD to Bitcoin for a fee. Then transfer from the donor’s wallet to the charity’s wallet for a fee. And then from the charity’s wallet to USD for a fee.
When the smoke clears, it is too slow and too expensive. Adding stablecoins just adds another transaction layer.
Or you are a inveterate gambler who wants to gamble on crypto.
Yes, there can be fees associated with EFTs (Electronic Funds Transfers), including those used to pay for ETF investments. While some types of EFTs, like payroll direct deposits, are often free, others may incur charges. The type of EFT, the sending and receiving banks, and the service provider can all influence whether and how much a fee is charged.
Fees associated with EFTs:
Some banks charge a small fee (e.g., $3) for sending an EFT to a different bank.
The receiving bank may charge a fee for incoming EFTs, especially for wire transfers.
ACH (Automated Clearing House) processors often charge a flat fee per transaction (e.g., $0.25 to $0.75), while other EFT providers may charge a percentage of the transaction amount (e.g., PayPal’s 2.9%).
While Fidelity doesn’t charge fees to process wire transfers, the receiving bank might charge an incoming wire transfer fee.
@SuisseBear I don’t understand what you have written.
What is the meaning of “custodised”?
Why would I want to place cash (or equivalent) at crypto exchanges with less-than-stellar creditworthiness? I would avoid such a fiduciary like the plague.
Why would this defuse massive counterparty risk?
Wendy
Hi Wendy,
To be clear, I‘m not advocating investments here.
In many jurisdictions, cryptocurrencies are considered custody assets, just like securities. I.e., you can hold them at brokers or exchanges without facing counterparty risk as they wouldn‘t end up in the exchange’s bankruptcy estate.
If you want to buy or sell say Bitcoin the exchange would normally have your cash on its balance sheet at least for a brief period, with you (possibly through intermediaries) incurring counterparty risk.
Funding with a stablecoin gets around that problem.
Of course there still is issuer risk - i.e. the stablecoin may not be as stable as the name implies. Possibly governments will get into that market one day.
I’m not sure that is even a possibility. I guess as long as you keep your crypto coins in the crypto system, it is hard to trace (maybe). But, if want cold hard cash, even if a transfer to a bank, you then enter a completely traceable system.
Reminds me of a local story a few years ago. A person was hiring a hitman to kill their spouse. Was going to pay in bitcoin. Everything was fine until the bitcoin was changed to cash, then everything became traceable. At least how the news article explained it.
The entirety of the Bitcoin ledger is public and viewable. You can see every transaction, from wallet to wallet. What you do not know from the ledger is who a wallet belongs to. You know everything else however. Until it involves a transfer to a bank, and which point know-your-customer laws kick in. Now you can link a person to a wallet.
The work around for more sophisticated criminals is the Bitcoin is transferred between multiple wallets many times, and even between cryptos (one person can control multiple wallets). This makes the Bitcoin essentially untraceable. A very high percentage (80-95%) of Bitcoin transactions are wash trades that have no economic value.
" Tracers in the Dark: The Global Hunt for the Crime Lords of Cryptocurrency" is a very interesting book about how criminals who pay in bitcoin were traced.
It’s a myth that cryptocurrencies are untraceable because of transfers between multiple wallets.
Wendy (I have no use for crypto but it was a really good detective book)
Stablecoins are tokens that can be exchanged on the various blockchain networks, using the blockchain protocols. They are an effort to “tokenize” USD, which cannot be exchanged directly on the blockchain, since USD are not native digital currency.
Rough analogy: consider cheques (or chips) in a casino. Those cheques have various values that are denominated in U.S. dollars. If you want to play a casino table game (like blackjack) you have to exchange your dollars for the cheques - they won’t let you use actual USD at the blackjack table directly (some exceptions not relevant here). The casino currency is perfectly pegged to the dollar - the dollar has been “tokenized” for use within the casino.