Stablecoins 101 | Bitcointalksearch.org

amishmanish

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Quote from: Lucius on August 01, 2021, 08:17:00 AM

--snip--
The way to protect yourself from volatility with the help of stablecoins is that you can sell your BTC for USDT if you think its price will fall - and that is something that a lot of people practice and I have often read such comments on the forum. Of course, a similar thing is achieved if you sell crypto for fiat, but here we return to the fact that people want something that allows them to dispose of their funds very efficiently and quickly - and this is exactly the reason why stablecoins have become very popular.

Stablecoins are mainly for traders who have their portfolios managed based on the USD equivalent value, rather than their native currencies. It really just helps you to sell high and buy back low, while making it easier to track the gains.

Secondly, the explosion of coins on multiple chains means that their trading pairs are available only with these centralized stablecoins (which are accessible cross-chain due to the central nature). I am not sure if this has been a good thing though. Earlier, most trading pairs on major exchanges were pegged only to BTC or ETH. This meant that most newbies came in through BTC (acquired in a privacy centric manner), and the shitcoin jugglery was done chiefly to increase your BTC holdings.

Now with different chains and the USD pegged stablecoins, all roads now seem to be leading to Rome, at least when it comes to the Alt-coins on other chains like Polkadot, Solana etc.

DrBeer

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Quote from: mk4 on July 21, 2021, 08:50:35 PM

Just a heads up: one important factor of centralized stablecoins is that they can be locked even when held in non-custodial wallets. Some people think that because something is a "cryptocurrency" and if you held something in your own wallet automatically means that it's permissionless. Really not the case with the USDT, USDC, and such.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets https://bitcointalksearch.org/topic/updated-psa-most-stablecoins-can-be-frozen-even-in-your-own-wallets-5204055

A very important note! Before the story with the blocking, I honestly did not even know that they had such a "subtle" feature that could "unexpectedly fire" with the tokens of an absolutely honest owner who does not suspect anything. He may simply become a victim of an error, or an unreasoned decision of the owner of the token (smart contract). The saddest thing is that there is essentially no opposition and no solutions ...
Although the concept of stablecoins is very practical, there is no other more convenient means, in the crypto world, for fixing at least a profit or a loss. Withdrawal to fiat is associated with additional costs and risks.

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Quote from: Lucius on August 01, 2021, 08:17:00 AM

As for me, you were pretty clear with your question so I can't say why no one offered an answer. I will try to answer the second question when it comes to protecting against volatility.

Wait a sec....I knew that already (I swear!) even though in my last post I asked for an explanation as to how stablecoins protect against volatility, because I was always aware that their main function was to act as a cash substitute on an exchange.

I guess what I didn't understand was the question you previously answered, and I appreciate it. I'm clear on everything now, since you explained how stablecoins make it much easier to get a cash equivalent to an exchange like Coinbase much quicker than actual cash. As I said, that wasn't something I'd considered since I didn't know it was a problem for people.

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I use local exchanges, and the transaction is processed within 15 minutes from the first network confirmation, and the confirmation often comes within 10 minutes if the fee is at the priority level. Within this time, the price changes a little, but the amount is usually insignificant in my experience. I don't use stablecoins because they're a bomb that can explode at any point because there's no real value behind them, and it can lead to catastrophic consequences if enough panic happens. The prices can be fixed in fiat for convenience, and I don't see how adding a stablecoin into the equation is making things easier.

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Quote from: The Sceptical Chymist on July 31, 2021, 11:21:16 AM

So buying a stablecoin on a local exchange and then using it as a proxy for fiat on the exchange you really want to use makes the trading process a whole lot faster.

That's right, it really makes sense to use this tactic to save time, and when your money is literally trapped for 3-5 days (or even longer) you realize you have to look for an alternative.

Quote from: The Sceptical Chymist on July 31, 2021, 11:21:16 AM

Why didn't anyone just say that? I get the feeling some members here are just shitposting about stablecoins or that there's more to the story as to why they're so useful. I offered merits to anyone who could explain to me what their major advantage is, and so far only you, Lucius, have given me some insight into my question. The offer of merits still stands if someone can provide me with a dumbed-down explanation of why coins like USDT protect you from volatility (though your answer might be the best one).

As for me, you were pretty clear with your question so I can't say why no one offered an answer. I will try to answer the second question when it comes to protecting against volatility.

If you have $100 and 100 USDT on a crypto exchange, the difference between these two deposits is that you can transfer stablecoin very quickly and cheaply - in terms of volatility, there is no difference, because USDT is pegged with USD - except that such stablecoin can be frozen even when stored in a non-custodial wallet.

The way to protect yourself from volatility with the help of stablecoins is that you can sell your BTC for USDT if you think its price will fall - and that is something that a lot of people practice and I have often read such comments on the forum. Of course, a similar thing is achieved if you sell crypto for fiat, but here we return to the fact that people want something that allows them to dispose of their funds very efficiently and quickly - and this is exactly the reason why stablecoins have become very popular.

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Quote from: Lucius on July 31, 2021, 04:37:10 AM

Of course, you have to buy stablecoin first, but then when you have it you get a big advantage because you completely bypass the banking system and stablecoin allows you to do almost instant transactions. Let's say I have the option to buy stablecoins at my local crypto exchange directly for cash or through a bank account, which is almost instantaneous - and then I can send that stablecoin to any crypto exchange in the world.

OK, that explanation actually makes sense--especially when combined with the quote from Coinbase about how long it takes to transfer money to them if you're not a US resident. So buying a stablecoin on a local exchange and then using it as a proxy for fiat on the exchange you really want to use makes the trading process a whole lot faster.

Why didn't anyone just say that? I get the feeling some members here are just shitposting about stablecoins or that there's more to the story as to why they're so useful. I offered merits to anyone who could explain to me what their major advantage is, and so far only you, Lucius, have given me some insight into my question. The offer of merits still stands if someone can provide me with a dumbed-down explanation of why coins like USDT protect you from volatility (though your answer might be the best one).

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Quote from: mk4 on July 30, 2021, 06:26:17 AM

It's probably a safe assumption that the word "stable" in "stablecoin" means stable against the US dollar, not necessarily stable value in general. But I do agree that bitcoin is the "safest" hold, the one that's far more guaranteed to not be taken away from you; short-mid term volatility aside.

There are stable coins pegged to other fiat currencies and not just us dollar, for example Tether has it's own version of EURT traded on Bitfinex (read Tether exchange) and Uniswap, other stable coins are even backed by Gold (yes, including Tether Gold), and other real world assets are also used.
When I look at long term chart for any fiat currency including dollar I am only seeing that it is only losing it's value and situation is getting much worse in last few years.
Bitcoin chart on the other hand, looks a lot like reversed dollar chart and we are going up long term.

VS

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Quote from: The Sceptical Chymist on July 30, 2021, 01:32:02 PM

Really? Does it take that long to transfer funds to an exchange like Coinbase? When I used them years ago it didn't take anywhere near that long.

For someone like you who lives in the US, this may not be a problem - but for everyone else, here's what Coinbase says when it comes to fiat deposits.

Quote from: The Sceptical Chymist on July 30, 2021, 01:32:02 PM

And I still am not seeing how obtaining USDT is faster than transferring money onto an exchange. How do you get the USDT in the first place? Stablecoins are only available on exchanges, right? I'm asking these questions sincerely, as I really don't have a clue as to how they facilitate anything.

Of course, you have to buy stablecoin first, but then when you have it you get a big advantage because you completely bypass the banking system and stablecoin allows you to do almost instant transactions. Let's say I have the option to buy stablecoins at my local crypto exchange directly for cash or through a bank account, which is almost instantaneous - and then I can send that stablecoin to any crypto exchange in the world.

If you are wondering why not trade at a local exchange, the reason is often poor liquidity and a very large fee compared to, say, Coinbase or Binance.

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this is an excellent full study on stable coins by InvestAnswers on youtube. Encourage everyone to follow this guy:

https://www.youtube.com/watch?v=2pvf9JnuEfE

Steeley

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Quote from: mk4 on July 21, 2021, 08:50:35 PM

Just a heads up: one important factor of centralized stablecoins is that they can be locked even when held in non-custodial wallets. Some people think that because something is a "cryptocurrency" and if you held something in your own wallet automatically means that it's permissionless. Really not the case with the USDT, USDC, and such.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets https://bitcointalksearch.org/topic/updated-psa-most-stablecoins-can-be-frozen-even-in-your-own-wallets-5204055

I agree, for me, the USDT coin is so good because it can be stored in any Ether wallet pretty easily, you can put all your tether into MEW and probably forget about it during a bearish phase, this would protect you from market volatility and at the same time, they are safe. Also without stablecoins you generally will need to withdraw the funds to your bank accounts creating unnecessary tax burdens on you but stablecoins have solved even this problem too. The best thing that has come out recently is staking of USDT too, if someone is worried that their money which would have earned some interest in the bank is lying idle in Tether, they can opt for this Staking too, the APR generally is around 4-5%, which is better than the Interest rate of many developed countries.

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I take it that you mean volatility other than the one you already have when buying with USD? I think there is a mix of things in your post. Firstly, temporal volatility that happens when the order in not executed immediately. I do not see how that can be an issue if you have an account in coinbase or any other for that matter where an order is executed in seconds.

Then you may have currency volatility, which is high no matter which fiat you choose. Since a stablecoin is pegged to USD, I do not see how does its use improve this. I think I am missing your point.

Quote from: Hydrogen on July 28, 2021, 02:04:54 PM

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As stated in OP. Banks and stablecoins are the two main paths whales use to purchase bitcoin and cryptocurrencies. A rise in tether purchasing is correlated with increasing bitcoin demand and buying volume. It seems many journalists write about tether and stablecoins without comprehending the basic roles and principles defining how they're used. It leads to uncertainty and many false allegations being made towards bitfinex/tether. Both of whom are very misunderstood.

Whales using banks and delayed orders? Is there any proof or verification of that? Whales will have one or many accounts or use a trading firm.

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Quote from: Lucius on July 30, 2021, 08:05:55 AM

There is no doubt that stablecoins facilitate transactions and this is clear to everyone - because if you try to send $1000 from your bank to a crypto exchange, it can take a few hours or even days - and if you have 1000 USDT, then it takes a few minutes.

Really? Does it take that long to transfer funds to an exchange like Coinbase? When I used them years ago it didn't take anywhere near that long.

And I still am not seeing how obtaining USDT is faster than transferring money onto an exchange. How do you get the USDT in the first place? Stablecoins are only available on exchanges, right? I'm asking these questions sincerely, as I really don't have a clue as to how they facilitate anything.

Quote from: Hydrogen on July 29, 2021, 05:19:34 PM

One advantage is not having to go through bank middlemen to buy crypto. Who might limit the selection of cryptocurrencies available for purchasing. And the unit volume they can be purchased in. As well as their salesman unit which could try to steer investors into buying a coin other than what they had originally intended.

OK, again....if I want to avoid using a bank by using a stablecoin instead, can you walk me through how that happens (like I'm a 4-year-old)? I'm probably being thick-headed, but I just don't get it.

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There is no doubt that stablecoins facilitate transactions and this is clear to everyone - because if you try to send $1000 from your bank to a crypto exchange, it can take a few hours or even days - and if you have 1000 USDT, then it takes a few minutes. But if we try to see what the implications of a possible government ban for such currencies are, then we have a potential bomb that could explode at any moment and cause enormous damage to the crypto market.

The controversy over how the USDT was actually backed up has been going on from the very beginning and continues even today, and obviously, investigators are not yet intelligent enough to figure out how to put an end to it. Just these days, news has surfaced of a new investigation being directed against "executives of Tether Ltd", but when you have enough money and top lawyers then it all ends up paying fines.

Quote from: https://www.cnbc.com/2021/07/26/doj-reportedly-probes-crypto-company-tether-for-possible-bank-fraud.html

The DOJ’s investigation is focused on activity from Tether’s early days, probing whether the company misled banks by hiding the fact that transactions were linked to cryptocurrency, Bloomberg reported Monday, citing three people with direct knowledge of the matter who asked not to be named because the probe is confidential. Federal prosecutors have sent letters in recent months to individuals alerting them that they are targets of the investigation and that a decision on the probe could be made soon, according to the news agency.

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Quote from: dkbit98 on July 29, 2021, 02:50:58 AM

Stable coins are not so stable if we look at inflation and hyperinflation, but it's more of mind games played with people.
Most stable coins we have today are centralized or fake decentralized, meaning that someone can freeze or reclaim your coins whenever they want.
There are many issues with USDT Tether that is constantly under then they eye of regulators and everyone is waiting for the day when someone will shut this thing down.
Than we have stable coins like BUSD that is operated by CZ and few of his friends, that is even worse than USDT or USDC with all due respect.
It is much safer to hold Bitcoin long term (you can still use stable coins for short term trading), because I am sure in few years many of this stable coins won't even exist and Bitcoin will remain.

It's probably a safe assumption that the word "stable" in "stablecoin" means stable against the US dollar, not necessarily stable value in general. But I do agree that bitcoin is the "safest" hold, the one that's far more guaranteed to not be taken away from you; short-mid term volatility aside.

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Quote from: The Sceptical Chymist on July 29, 2021, 05:48:18 AM

what's the difference between buying bitcoin with USD vs. USDT, i.e., what's the advantage?

One advantage is not having to go through bank middlemen to buy crypto. Who might limit the selection of cryptocurrencies available for purchasing. And the unit volume they can be purchased in. As well as their salesman unit which could try to steer investors into buying a coin other than what they had originally intended.

Bttzed03 might have nailed another advantage above. Bitcoin ATMs can charge 20% above current market costs. Stablecoins could allow a person to avoid those price mark ups to some degree. The stablecoin business model could be more volume based than single point of sale based. Similar to walmart when their business model was all the rage, pre amazon era. Stablecoin profit margins could be smaller but can more than make up for it with higher volume, over the long term.

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Quote from: WePiggy on July 28, 2021, 11:25:34 AM

It would be good to see more pegged currencies rather than just USD coins.

There are a few more on "this" list but after what @mk4 mentioned the other week, do you still want more of those?

Quote from: Hydrogen on July 28, 2021, 02:04:54 PM

A rise in tether purchasing is correlated with increasing bitcoin demand and buying volume.

I've never looked at it from that perspective ^{[make sense]}.

If you monitor closely some of the huge internal transfers ^{[they're labeled: e.g. this one]} for both "Tether and BTCitcoin", then perhaps you might be able to spot one as an example.

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I guess I don't understand how a stablecoin would mitigate volatility risk when someone's buying bitcoin on an exchange and waiting for the trade to go through and then withdrawing it to a wallet or a merchant. USDT is pegged to the value of the USD, correct? This is going to sound very ignorant (because it is), but what's the difference between buying bitcoin with USD vs. USDT, i.e., what's the advantage?

I get what Hydrogen means about the risk of losing purchasing power while you're waiting for your Coinbase purchase to execute, but my other question would be why you would even want to purchase bitcoin on an exchange in order to buy something that you could probably buy with fiat. If you're using an exchange like Coinbase, obviously privacy isn't much of a concern, so you'd be much better off bypassing crypto altogether and making your purchase with a debit/credit card.

Quote from: Hydrogen on July 21, 2021, 06:30:57 PM

The other reason stablecoins are in demand is for crypto purchasing in larger sums.

If a whale wanted to buy $1+ million in bitcoin. They would typically have 2 main options.

1. Banks
2. Stablecoins

If someone could explain to me like I'm a 4-year-old how this works and why stablecoins would help in a case like this, I've got plenty of merits to spread around.

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Quote from: Hydrogen on July 21, 2021, 06:30:57 PM

~ Buyers of crypto have sought methods of nullifying volatility on the buyer's end. This is where stablecoins enter the picture.

The importance of stable coins have been more evident to me when I saw many newbie enter crypto because of the P2E trend that was made more popular by blockchain game called Axie.

I witnessed how many of these P2P sellers would charge more fee for fiat/coin pair over fiat/stable coin. I understand that sellers have to take into account the volatility and charge it to the other party for price protection but that's not good on the side of buyers (especially newbies).

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Stable coins are not so stable if we look at inflation and hyperinflation, but it's more of mind games played with people.
Most stable coins we have today are centralized or fake decentralized, meaning that someone can freeze or reclaim your coins whenever they want.
There are many issues with USDT Tether that is constantly under then they eye of regulators and everyone is waiting for the day when someone will shut this thing down.
Than we have stable coins like BUSD that is operated by CZ and few of his friends, that is even worse than USDT or USDC with all due respect.
It is much safer to hold Bitcoin long term (you can still use stable coins for short term trading), because I am sure in few years many of this stable coins won't even exist and Bitcoin will remain.

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Quote from: Bravehash on July 28, 2021, 01:52:37 PM

After all the latest rumors surrounding tether and bitfinex I've decided to swap all my usdt to DAI stable coin instead, it seems things are getting hotter sir USDT right now and anything can happen, I'm not sure about binance exchange since they are also on fire right now, I don't know how safe BUSD is

DAI is backed mostly by centralized stablecoins, mainly USDC. If regulators decided to go after USDC then it could collapse the price of DAI. If a major stablecoin like USDT or USDC failed then it could have a big negative impact on the entire crypto market and even fully decentralized stablecoins wouldn't be safe because the collateral backing them would fall below a level where they would lose their peg to the dollar.

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