I've asked people questions about stablecoins before on other fora, and I get the impression that even if they maintain their peg, they wouldn't be useful to mere mortals as opposed to big crypto exchanges. Just so that others and myself can be absolutely clear, what are USD-pegged stablecoins for? No snarky answers, please.
I ask this because:
- you can't actually shop in your supermarket using stablecoins
- there is more risk to them than holding USD
- there is no increase in privacy because blockchains are public ledgers
- it's not bankless because the stablecoin issuer is effectively a (poor) bank
- it doesn't bypass KYC or AML because a regulator can decide that stablecoins are effectively currency. Also, Bitfinex requires their KYC forms to be filled out before you can withdraw stablecoins, making them no better than fiat, at least within the context of that exchange. If other crypto exchanges are like this, then you are better off converting to fiat every single time.
From discussions with people, this appears to be a weird dance that means regulators can't regulate, for some reason.
In most (all ?) countries except US, you are not taxed for crypto to crypto conversion. However you are taxed when you convert crypto to fiat. For example if you want to secure your bitcoins benefits by converting them to 1M USD, in France you should pay 300k USD (30% flat tax). But if you convert them to 1M UST, or USDT, or USDC, or whatever, then you pay nothing.
Note this is not tax evasion. At the end if you want to buy something useful (e.g. a house) with your crypto assets, you will still need to convert them to fiat and to pay taxes. This is just a way of securing volatile crytpo assets.
Apparently it's literally just for staking. As a south american it would be very hard for me to invest any dollars in stocks or whatever compared to staking these stablecoins in my local exchange. A few taps and they will take my money. The traditional financial system literally won't take my money due to them thinking I'm a drug kingpin or something.
> what are USD-pegged stablecoins for? No snarky answers, please
simply put: mitigating price volatility of the base token. rather than only holding an asset that has huge swings per day, you can hold an asset that has minuscule swings per day.
this might be useful for tax purposes, payments & donations, or just to balance your portfolio. unlike fiat this has all the features of ERC20 and self-custody.
DAI, USDC and RAI are all fairly interesting and make different choices and trade-offs to stabilize their price. all stablecoins do carry risk though; if you want a risk-free coin then just convert to fiat.
> simply put: mitigating price volatility of the base token
Then cash it out and put it in your bank. OMG.
> this might be useful for tax purposes,
How??
> payments
You can't pay for groceries.
> & donations,
Your donee won't be able to get groceries.
> or just to balance your portfolio.
But it pays no dividends, so it's not really part of any portfolio, and it's a poor man's cash.
> unlike fiat this has all the features of ERC20
And what are those? And can those be achieved in other ways?
> and self-custody.
What the hell does this mean?
> DAI, USDC and RAI are all fairly interesting
Oh, indeed!
> and make different choices and trade-offs to stabilize their price.
But I still don't know why you need this!!!
> all stablecoins do carry risk though; if you want a risk-free coin then just convert to fiat.
Oh, absolutely.
[addition]
I'm coming more from the BTC direction, where smart contracts are very limited. Then I really don't know what stablecoins are for. From an ETH direction, stablecoins might make sense as a way for smart contracts to operate on USD, assuming smart contracts are actually useful for something that can't be done better in other ways.
You're coming from a BTC direction but you don't know what self custody means?
Anyways, an example of what I would use stablecoins for: I expect the price of $TOKEN to go down so I swap it for USDC. While I'm waiting for $TOKEN price to go down I lend my USDC on Aave for ~3% APY (and yes, there is smart contract risk here but I chose Aave in my example for that reason). When $TOKEN price drops enough I swap the USDC back for $TOKEN.
Another situation: I want to send my family member money to help with down payment on a house. I don't want to sell $TOKEN because I think the price will go up, so instead I lend $TOKEN on Aave and borrow stablecoins. I send stablecoins to family member (worth noting this would be difficult to do in FIAT due to the amount) and when he pays me back I can then withdraw my $TOKEN.
One more: I just sold a jpeg and want to make sure I have enough cash to pay taxes next year. Instead of hoping my $TOKEN price will stay same or go up I sell some for USDC to cover taxes
Jesus, is the comment about dodging taxes necessary? For the record I paid a fuckton of taxes for my crypto transactions, it would be idiotic not to. Do you know why?
I'm not sure if my wire transfer experience is uniquely bad, but I had to do a wire transfer when I made a down payment on my house last year. To do this I had to drive to a physical bank location, sign some papers, and then they told me it will probably arrive within a couple hours.
Google says the bank I use is 6th largest in the US so maybe bigger banks are better but I'm guessing my experience is not an outlier.
edit: oh also forgot to mention wire transfer limits. I don't know the exact limit is for my bank but I'm guessing it's under the amount I transferred. I'm guessing this would mean multiple trips to a physical bank branch in the year 2022
> I send stablecoins to family member (worth noting this would be difficult to do in FIAT due to the amount) and when he pays me back I can then withdraw my $TOKEN.
While you're on your high horse about the taxes comment, you should know that in the US what you're describing here is illegal. You can't give someone an interest-free loan and have neither party pay taxes on it. Your options are roughly either to classify it as a gift or structure it like an actual loan, with a minimum acceptable rate published by the IRS each month. https://www.lindsayandbrownell.com/beware-of-the-interest-fr...
Sorry, taxes comment was out of place. Just frustrated.
The loans aren't interest free, they have a variable rate determined by supply and demand. For USDC its been pretty steady around 3%. There was a day or two last year where it spiked to 40% when Justin Sun removed billions of his capital.
In response to wire transfer, I was more complaining about having to be at a physical bank branch to do it. Not sure if that is unusual either.
edit: Just remembered that normally I wouldn't have to physically go to the bank. I had to do so to make sure it arrived in time for the signing. I think they told me it would take a day or two if I did it online/over phone? But being there in person they said it would "probably" arrive in a couple hours
Schwab lets me wire up to 100K a day using an online form, sounds like you need a better bank. I thought the whole point of wire transfers was to move around large sums of money, so it surprised me that you thought it's supposed to be difficult.
Perhaps one example is Endaoment[1], which automatically converts ETH payments to USDC to mitigate market volatility and ensure beneficiaries receive donations in dollar amounts. This is also good from a tax perspective, as businesses report income based on the USD price of an asset at the time it is received, not based on the price of that asset later when it may be disposed.
Also see Stripe USDC payouts[2]. Some users may prefer this to receiving payments in a PayPal account.
No. Being "non-custodial" means you don't have the risk of the exchange going down. But the risk of the stablecoin losing its value is greater than your bank having a bank run. So if you don't want risk, turn it into cash and keep it in your bank.
Otherwise, what the hell do you want from "non-custodial"? And why can't I ever get a straight answer.
Non-custodial just means you own and control the asset by virtue of being the only person with the private key.
A similar analogy is web servers. Most users are fine to run their website on AWS, but some users would like the ability to host their own servers without dependence on a business corporation. The reasons for doing so might be varied, despite the additional burden of maintenance/costs and higher risk of downtime. A system where this option is possible is better than a system where this option is not possible.
A specific financial example of where custody might prove problematic even in a developed country (where your currency, government, and banks is not causing you financial hardship) is escheat laws[1]. You purchase a stock, mostly forget about it, and come back several years to find that the state has taken control of it and sold it to generate revenue for itself. Some users might prefer to have non-custodial ownership over that stock, despite the additional maintenance burden.
There are other features of ERC20 tokens that you cannot easily achieve with fiat; which may be another reason to hold stablecoins.
Obviously if somebody wishes to avoid risk entirely, and they have access to a suitable bank and government, they should stick with a fiat custodial account and not purchase any assets.
If you assume that smart contracts are useful and important, then stablecoins are a necessary part of any smart contract ecosystem. If a smart contract can perform useful operations on tokens, then it makes sense that people might want to perform those operations on tokens which are stable.
I guess my confusion is that I'm coming from Bitcoin and Tether. Bitcoin doesn't have support for smart contracts (except in the form of Bitcoin Script, which is so limited that I'm not counting it). And Tether is far from non-custodial; it's very centralised. Then it's easy to wonder what Tether is for.
> A specific financial example of where custody might prove problematic even in a developed country (where your currency, government, and banks is not causing you financial hardship) is escheat laws.
Doesn't explain Tether, which does have custody. The market cap of Tether is something truly enormous. I just don't know why and what for.
Any explanation of stablecoins will have to explain the use cases and market cap of Tether.
Tether (USDT) is attractive to high-risk traders who are seeking high return and low exchange fees. This doesn't mean it is good or will remain stable indefinitely—I would not be surprised if it follows a similar path as UST. As it is an ERC20 token[1], it can be held and transferred in a non-custodial fashion as with most other crypto tokens, but with the caveat that it is run by a centralized entity and therefore your address could be frozen/blacklisted by their contract. The same is not true of all stablecoins; DAI cannot freeze an address, for example.
It might be hard to realize, but there are dozens or hundreds of stablecoins. Anybody can publish a new stablecoin as the blockchain is permissionless (literally: nobody needs permission to deploy a new ERC20 token). Obviously not all purported "stablecoins" will be safe, stable, or useful; but it also does not mean that every one will carry the same risks as UST and USDT. A government could issue a ERC20 token for example and it would largely be seen as "safe" with the caveat that it is centralized.
It's for transferring USD between exchanges without cashing out first. Supposedly, cashing out first costs money and takes time, and stablecoins can do between-exchange transfers faster and cheaper. But then why does it use blockchain? Blockchains are really slow, and transaction fees are bloody huge. There's also no privacy on a blockchain. This doesn't need a blockchain to happen. Why does this bullshit use blockchains?
It's also for keeping your money in a "non-custodial wallet". But that's basically a motherf---ing bank. Just cash out and stick your money in a bank.
It's also for "smart contracts". But BTC barely supports smart contracts.
I ask this because:
- you can't actually shop in your supermarket using stablecoins
- there is more risk to them than holding USD
- there is no increase in privacy because blockchains are public ledgers
- it's not bankless because the stablecoin issuer is effectively a (poor) bank
- it doesn't bypass KYC or AML because a regulator can decide that stablecoins are effectively currency. Also, Bitfinex requires their KYC forms to be filled out before you can withdraw stablecoins, making them no better than fiat, at least within the context of that exchange. If other crypto exchanges are like this, then you are better off converting to fiat every single time.
From discussions with people, this appears to be a weird dance that means regulators can't regulate, for some reason.