Hedge Fund Fir Tree Bets Big With Short of Stablecoin Tether
Fir Tree Capital Management, a $4 billion hedge fund, is making a substantial 12-month short wager on Tether. Its thesis against Tether centers around the coin’s roughly $24 billion in high-yield commercial paper, much of it the firm believes is tied to Chinese real estate developers.
How Kenyan Micro-Task Workers Are Using Stablecoins To Make Affordable Cross-Border Payments
"According to a pilot study by Mercy Corps Ventures on a group of Kenyans providing micro-task services to Appen, a data company for the development of machine learning and artificial intelligence products, Stable coins were identified as the optimum solution that delivers the highest value to the micro-task worker as the transaction fees and speeds are lowest. The workers delivered services to Appen through a micro-working app named Corsali. They were then paid through the same app."
Euroclear invests in Fnality, blockchain-based synthetic CBDC
Euroclear has invested in Fnality, the blockchain payments consortium formerly known as the Utility Settlement Coin (USC) and owned by 16 major financial institutions. Euroclear operates Central Securities Depositories (CSDs) across Europe, including Belgium, Finland, France, Ireland, the Netherlands, Sweden, and the United Kingdom. In October, Fnality plans to launch its first payment currency with pounds sterling deposited at the Bank of England. That makes it a so-called wholesale synthetic CBDC where the purpose is for institutions to use it for settlement, especially for blockchain-based transactions.
Responses to the Bank of England’s Discussion Paper on new forms of digital money
The Bank of England published a summary of the responses to the June 2021 Discussion Paper on potential monetary policy and financial stability implications of new forms of digital money, including CBDC and systemic stablecoins. Respondents generally agreed that access to cash should be preserved, and any regulation for systemic stablecoins should be clear, proportionate, and risk-based.
"Terra’s design for its algorithmic stablecoins such as UST or KRT differs slightly from the coupon coin model and introduces a token called LUNA, with the equivalent function to the coupons or bonds seen in other designs to absorb the price volatility of its stablecoins."
Government sets out plan to make UK a global crypto-asset technology hub
The UK government announced moves that will see regulated stablecoins recognized as a valid form of payment as part of wider plans to make Britain a global hub for crypto-asset technology and investment. Measures include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate, an Financial Conduct Authority-led ‘CryptoSprint’, working with the Royal Mint on a non-fungible token (NFT), and the establishment of a Crypto-asset Engagement Group to work more closely with industry. The UK government will also explore ways of enhancing the competitiveness of the UK tax system to encourage further development of the crypto-asset market in the UK, including reviewing how DeFi loans are treated for tax purposes.
Circle Internet Financial, a global internet finance firm and the issuer of USD Coin (USDC) has entered into an agreement for a $400 million funding round with investments from BlackRock, Fidelity, Marshall Wace LLP and Fin Capital. The funding round is expected to close in the second quarter. In addition to its corporate strategic investment and role as a primary asset manager of USDC cash reserves, BlackRock has entered into a broader strategic partnership with Circle, which includes exploring capital market applications for USDC.
Tether to reduce commercial paper holdings in USDT reserves
Tether plans to reduce its holdings of commercial debt in its reserves, Chief Technology Officer Paolo Ardoino told CNBC. Tether holds short-term corporate debt but does not disclose from which companies, which has raised transparency concerns. But Ardoino said Tether, the issuer of the USDT stablecoin, will cut its holdings of commercial paper further than the current 30% of total reserves, and move the money to U.S. Treasurys.
Stablecoin issuer Circle Internet narrows deadline to apply for U.S. crypto bank charter
Circle, the issuer of USD stablecoin, is pushing forward with its plans to submit an application to operate as a U.S. crypto bank, CEO Jeremy Allaire told Bloomberg. If approved, the startup would be the fourth federally chartered crypto bank in the U.S. Allaire added that his company and the U.S. Office of the Comptroller of the Currency, which facilitates bank charters, have been talking about Circle's digital asset banking prospects among other related topics such as the interoperability between blockchains.
Here is how an algorithmic stablecoin works. You invent two tokens, call them Dollarcoin and Sharecoin. You list them on the crypto exchanges. Sharecoin trades for whatever price is determined by supply and demand. It might be $0.01 per Sharecoin, or $1, or $100, who knows. But Dollarcoin is supposed to trade at $1. If it trades at $0.99, you have some automatic process in which you print more Sharecoins and use them to buy Dollarcoins until it is back to $1. If it trades at $1.01, you have some automatic process in which you print some more Dollarcoins and use them to buy Sharecoins until it is back to $1. The result is that Dollarcoin is firmly pegged to the dollar. The process is sometimes compared to algorithmic central banking, where the central bank maintains the value of the currency (Dollarcoin) by adjusting its supply.
‘Built to Fail’? Why TerraUSD’s Growth Is Giving Finance Experts Nightmares
"UST, by contrast, began life as what’s known as an “algorithmic” stablecoin. These could also be referred to as “decentralized” stablecoins because decentralization is their primary reason for existing. A collateralized stablecoin like USDT or USDC is reliant on banks and traditional markets. That makes them in turn subject to regulation, enforcement and ultimately, censorship of transactions. Circle and Tether are run by centralized corporate entities with the ability to blacklist users and even seize their funds. Both systems have done this, sometimes at government behest."
The primary function of Abaku Capital is the maintenance and promotion of a family of tokens aimed at facilitating commerce. The flagship token is designed for monetary stability, and as a hedge against foreign-exchange risk, whereas the rest of the family comprises tethers to various currencies of interest. This token is, in essence, a cryptonisation of the International Monetary Fund’s proprietary currency, the SDR (special drawing rights). The SDR, and therefore its Abaku counterpart, is an asset-backed currency based on a basket of national currencies managed by the IMF.
TerraUSD (UST), the the third largest stablecoin by market capitalization and the largest algorithmic stablecoin, briefly lost its dollar peg on May 7, 2022, falling to .987 before bouncing back the next day. This wasn't UST's first depeg, nor its largest, but it marks the first time it has lost its peg since it started building out Bitcoin and Avalanche reserves. The depeg did not cause Terra to tap into its Bitcoin reserves, as the deployment of hundreds of millions of dollars of rescue capital appeared enough to buoy the token back to around $1.
UST Stablecoin Falls Below Dollar Peg for Second Time in 48 Hours
TerraUSD (UST), the the third largest stablecoin by market capitalization and the largest algorithmic stablecoin, has lost its dollar peg. The first depeg took place on May 7 (Saturday) and after recovering the next day, the peg broke again today (Monday, May 9). This isn't UST's first depeg, nor its largest, but it marks the first time it has lost its peg since it started building out Bitcoin and Avalanche reserves. Today’s depeg comes after the Luna Foundation Guard announced Sunday night that $1.5 billion of its massive bitcoin reserves would be “loaned” out to professional market makers to proactively defend UST’s dollar peg.
Unstable Stablecoin: How Crypto’s Crash Broke The Buck For TerraUSD
"TerraUSD (UST), a digital token with a $16 billion market capitalization that is designed to maintain a 1:1 peg with the dollar, known as a stablecoin, nosedived over the past 24 hours. Its price fell below $.65, before somewhat recovering to $0.93 as of this writing. In other words, UST failed spectacularly at the one thing that it was supposed to do - maintain parity with the dollar."
"The basic thing that makes Terra valuable is confidence in it. The essential source of this confidence is ... just sort of recursive social belief? If you think that everyone else will treat Terra as worth a dollar, then you will treat it as worth a dollar, and you won’t sell it for $0.90 in a panic, which means that it won’t go down to $0.90, etc. But if you think that everyone else will treat Terra as worth zero, then you will dump it as fast as you can at whatever price you can get, which means that it will go down below $0.90, etc."
"For now, MakerDAO remains the premier decentralized stablecoin with over-collateralized crypto reserves backing the DAI stablecoin. The race to develop the first under-collateralized stablecoins remains to be won as projects like USDN on the Near Protocol or Frax Share on Ethereum gain popularity."
UST’s Bitcoin Reserve Too Late in Coming to Save Dollar Peg
"Luna Foundation Guard (LFG)'s proposed cryptocurrency reserve to guard against a collapse of the UST stablecoin came too late to guard against the past week's market turmoil."
Terra’s stablecoin does its own 2008 crisis — UST crashes and takes Bitcoin with it
"Terra built itself its own small 2008 financial crisis with “stable” assets built from chained boxes of worthless trash, and the whole thing fell over in a stiff breeze and crashed Bitcoin in the process."
To some extent, it's really important for an algorithmic stablecoin to exist, in order for crypto or defi to reach its full potential. Backed stablecoins (like Tether or USDC) are at risk of censorship and seizures. As long as there's money in a regulated bank account somewhere bolstering the value of the coin, that's something that law enforcement or regulators can go after, seize, or set constraining rules around its use. That risk is inconsistent with the crypto ethos, hence the desire for something that's cash-like, but doesn't actually touch regulated financial entities, and can't be seized etc. Here's the thing though, just because it may be a crucial component of the future DeFi vision doesn't mean it's necessarily going to be possible. The question remains how can you just create an asset and set the price unless you have an infinite amount of money, or some other persistent source of cash flow, to back it?
Terra founder Do Kwon shares plan to save the UST stablecoin peg
"In a nutshell, the “decentralized” stablecoin protocol UST has come up with a preliminary solution to its disastrous situation where its peg to the U.S. dollar has broken. The process should reinforce the burning of UST, which so far, has been ineffective in achieving dollar parity for the stablecoin."
Terra’s stablecoin does its own 2008 crisis — UST crashes and takes Bitcoin with it
David Gerard has provided some excellent analysis of the continuing crash of the TerraUSD (UST) algorithmic stablecoin and the resulting fallout on broader crypto-asset markets. TerraUSD tumbled to as low as $0.30 on May 11, on fears of a "death spiral" in an asset that is supposed to be pegged to the U.S. dollar. Luna, the crypto-asset intimately tied to TerraUSD, was down almost 90% on the day as confidence in the network collapsed, and Bitcoin and Avalanche (AVAX) are also paying the price for being collateral assets that maintain TerraUSD's peg.
UST’s Do Kwon Was Behind Failed Stablecoin Basis Cash
"Do Kwon, the CEO of Terra creator Terraform Labs, was one of the pseudonymous co-founders behind the failed algorithmic stablecoin Basis Cash, CoinDesk has learned."
"An “algorithmic stablecoin” sounds complicated, and there are a lot of people with incentives to pretend that it is complicated, but it is not. Here is how an algorithmic stablecoin works"
Terra Proposes Token Burn and Increase in Pool Size to Stop UST Dilution
"In a proposal put forward to token holders, Terra said that it wants to burn the nearly 1 billion UST (roughly $690 million) in the community pool while increasing the Base Pool of LUNA available to 100 million which in turn increases minting capacity to over $1 billion. This will help expedite the outflows of UST from the system, and thus pushing it back closer to its peg, while pushing down the price of Luna. “Currently, the burning of UST is too slow to keep pace with the demand for excess UST to exit the system, which is hindered by the BasePool size,” reads the proposal. “Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST.”"
Terra Blockchain Halted To 'Prevent Attacks' After Luna Token Crashes Nearly 100% Overnight
Terraform Labs announced that the blockchain's miners had decided to halt the Terra blockchain in order to "prevent governance attacks" following "severe [luna] inflation." Later, Terra said validators are working to restart the network "in a few minutes.
Price discovery for bitcoin takes place in derivatives trades where tether serves as the margin and settlement currency. What trading of the dollar against the euro is to currencies, trading of bitcoin against tether is to crypto. On the Binance exchange, the pricing of reassuringly named perpetual swap contracts involving bitcoin and tether drives bitcoin prices in US dollars and more broadly influences prices across crypto... Without tether, or at least without stablecoins, it is not clear how the crypto complex functions. Problems with the vehicle currency would impair the liquidity of the whole crypto complex, just as the “dollar shortage” of late 2008 impaired the liquidity of the whole foreign exchange market. Less liquid assets are worth less. And if a prominent stablecoin becomes essentially a worthless entry on nobody’s spreadsheet, it would suggest other crypto could go to zero.
Why financial engineering has gone full circle with Terra
The crypto market was always going to be vulnerable to the return of a positive yielding fiat environment. This is because its gains were always likely the function of an excessively cheap debt financing world. If that’s true, it’s entirely possible that the last 10 years or so of sky-rocketing crypto gains were largely a transfer of “cheap money” financial profiteering, which — were not for the post GFC regulatory environment — would otherwise have been captured by the banking industry in the form of sky-high bank equity valuations.
