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Why financial engineering has gone full circle with Terra
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.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#DFC
·the-blindspot.com·
Why financial engineering has gone full circle with Terra
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
"This Article argues that algorithmic stablecoins are fundamentally flawed because they rely on three factors which history has shown to be impossible to control. First, they require a support level of demand for operational stability. Second, they rely on independent actors with market incentives to perform price-stabilizing arbitrage. Finally, they require reliable price information at all times. None of these factors are certain, and all of them have proven to be historically tenuous in the context of financial crises or periods of extreme volatility. "
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·papers.ssrn.com·
Built to Fail: The Inherent Fragility of Algorithmic Stablecoins
Algorithmic stablecoins and devaluation risk
Algorithmic stablecoins and devaluation risk
"On 10 May 2022, the price of TerraUSD, an algorithmic stablecoin operating on the Terra blockchain, fell and it lost its peg to one US dollar. Using the devaluation of the TerraUSD peg as a case study, this column shows how algorithmic stablecoins are vulnerable to speculative attacks when the system is under-collateralised. The authors point to solutions – stable collateral and over-collateralisation – to stabilise the peg."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·voxeu.org·
Algorithmic stablecoins and devaluation risk
Decentralized Stablecoins and Collateral Risk
Decentralized Stablecoins and Collateral Risk
"In this paper, we study the mechanisms that govern price stability of MakerDAO's DAI token, the first decentralized stablecoin. DAI works through a set of autonomous smart contracts, in which users deposit cryptocurrency collateral, typically Ethereum, and borrow a fraction of their positions as DAI tokens. Using data on the universe of collateralized debt positions, we show that DAI price covaries negatively with returns to risky collateral. The peg-price volatility is related to collateral risk, while the stability rate has little ability to stabilize the coin. The introduction of safe collateral types has led to an increase in peg stability."
#Fintech#CryptoAssets#Stablecoins#DAI#DFC
·papers.ssrn.com·
Decentralized Stablecoins and Collateral Risk
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
"The Beanstalk cryptocurrency has been stripped of reserves valued at more than $180m (£138m) in seconds, after an attacker used borrowed money to snap up enough voting rights to transfer the money away. Describing itself as a “decentralised credit based stablecoin protocol”, Beanstalk offers a cryptocurrency, called beans, intended to have a stable value of $1 a coin. It effectively operated as a bank, letting savers (“bean farmers”) make deposits (of “beans” into a “field”), and using their savings to ensure that the value of a single bean stayed as close to $1 as possible." https://medium.com/beanstalkfarms/introducing-beanstalk-557c45cb8d80
#Fintech#CryptoAssets#Stablecoins#Beanstalk#DFC
·theguardian.com·
Beanstalk cryptocurrency loses $182m of reserves in flash ‘attack’
How Terra's UST and LUNA Imploded - Decrypt
How Terra's UST and LUNA Imploded - Decrypt
"Amid the craziest week in crypto ever, the collapse of Terra's UST stablecoin and governance token LUNA emerged as the biggest story. Amid the crash, LUNA, formerly a top 10 coin by market cap, fell 100% to fraction of a fraction of a cent, and UST, designed to stay pegged at $1, bottomed out at 13 cents."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·decrypt.co·
How Terra's UST and LUNA Imploded - Decrypt
Stablecoin supplies and cash reserves in question amid crypto exodus
Stablecoin supplies and cash reserves in question amid crypto exodus
Cryptocurrency investors and traders have been cashing out of the stablecoin Tether (USDT) in the wake of the TerraUSD (UST) debacle. There has also been a flight to large centralized US-domiciled stablecoins like Binance USD (BUSD) and USD Coin (USDC), with monthly attestations and 100% treasury bill backing, and a flight away from Tether (USDT) with less-frequent attestations and riskier backing, and DAI and other decentralized stablecoins.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#USDC#DFC
·cointelegraph.com·
Stablecoin supplies and cash reserves in question amid crypto exodus
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
The market reactions over the past week are a reminder that stablecoins are far from homogenous and carry different reserve profiles with varying risk, not unlike banks in traditional finance. The crypto markets are still assessing the aftermath of the UST collapse but one immediate effect has been a drawdown in stablecoin liquidity within DeFi. The amount of USDC held in smart contracts on Ethereum has fallen by about $5B since its peak in March. Similarly, the supply of DAI (an over-collateralized, crypto-backed stablecoin) in smart contracts has also fallen about $2B. Most of this decline can be attributed to weakening demand for DAI on decentralized exchanges, cross-blockchain bridges, and lending protocols. Estimates of total value locked (TVL) have also come down, but these measures are often exaggerated due to rehypothecation of assets.
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#USDC#DFC
·coinmetrics.substack.com·
Surveying Stablecoins in the Wake of the LUNA/UST Collapse
Tether Reassure Users with “Assurance Opinion”
Tether Reassure Users with “Assurance Opinion”
Tether published its March 31, 2022 quarterly assurance opinion showing that assets exceed its USTD liabilities ($82.4 billion versus $82.2 billion) and revealing a 17% decrease in commercial paper holdings (to $20.1 billion). Also, the average rating of commercial paper and certificates of deposits has gone up from A-2 to A-1, and investments in U.S. treasury bills have gone up 14% to $39.2 billion. However, 14% of assets ($11.8 billion) are comprised of secured loans, corporate bonds, funds, precious metals and "other investments (including digital tokens).
#Fintech#CryptoAssets#Stablecoins#Tether#DFC
·tether.to·
Tether Reassure Users with “Assurance Opinion”
Do you have the right to redeem your stablecoin?
Do you have the right to redeem your stablecoin?
Stablecoins are often discussed with regard to their “stability.” It is usually questioned whether a stablecoin is sufficiently backed with money or other assets. Undoubtedly, it is a very important aspect of stablecoin value. But, does it make sense if the legal terms of a stablecoin do not give you, the stablecoin holder, the legal right to redeem that digital record on blockchain for fiat currency? This article aims to look into the legal terms of the two largest stablecoins — Tether (USDT) by Tether and USD Coin (USDC) by Centre Consortium, established by Coinbase and Circle — to answer the question: Do they owe you anything? The short answer is no.
#Fintech#CryptoAssets#Stablecoins#Tether#Circle#DFC
·cointelegraph.com·
Do you have the right to redeem your stablecoin?
There Was No Terra ‘Attack’
There Was No Terra ‘Attack’
"Though rumors about BlackRock and Citadel are just that, it does seem very plausible that some large mainstream hedge fund was involved in the Terra depeg. That would be a major double-edged sword. On the one hand, it would mean crypto is regarded as a robust and trustworthy enough ecosystem that mainstream finance is willing to risk shorting it. The emergence of more such shorts would, furthermore, benefit the ecosystem long-term by providing a profit motive for asking hard questions about projects."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·coindesk.com·
There Was No Terra ‘Attack’
The Hong Kong Dollar Is the Best Stablecoin. Sorry, Terra and Luna
The Hong Kong Dollar Is the Best Stablecoin. Sorry, Terra and Luna
"Pegged to the US dollar for nearly four decades, the currency in the Asian financial center is a stablecoin, albeit of the paper variety. Most days it relies — just like UST — on arbitrage to hold its value at 7.8 to the dollar. But there are two key differences. The Hong Kong Monetary Authority runs a pure currency board. All of HKMA’s monetary base is backed 110% by US dollar assets. Second, while fixing the exchange rate, the authority deliberately lets interest rates float freely to absorb pressures on the peg. When the local currency gets sold off, there’s a capital flight from Hong Kong. But that automatically raises interest rates enough to lure buyers back."
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·bloomberg.com·
The Hong Kong Dollar Is the Best Stablecoin. Sorry, Terra and Luna
Tether’s accountant waves red flag
Tether’s accountant waves red flag
The language used by Tether’s accountant in the latest quarterly attestation report suggests it’s worried about the future existence of the stablecoin. MHA Cayman used ‘going concern’ language, a form of words that implies a business is stable enough to meet its obligations for the time being, but which suggests the accountant is taking a step back in judging the business as viable. The accountant added other new language to Tether’s attestation, suggesting significant uncertainty with respect to the valuation of Tether’s assets and its exposure to possible counterparty risks.
#Fintech#CryptoAssets#Stablecoins#Tether#DFC
·newmoneyreview.com·
Tether’s accountant waves red flag
Circle to Issue Weekly USDC Reserve Reports
Circle to Issue Weekly USDC Reserve Reports
Circle CEO Jeremy Allaire announced that company will now provide weekly attestations concerning stablecoin USD Coin (USDC) reserves and liquidity. According to the latest week's figures, all $52.9 billion USDC in circulation are fully backed by cash ($12.8 billion) and short-dated U.S. Treasury securities ($40.2 billion expressed in terms of fair market value) held at U.S. regulated financial institutions on behalf of USDC holders. This weekly reporting is in addition to the the monthly attestation reports which, like Tether's, are published with long lags.  The last one (covering the accounts as of March 31, 2022) was published at the end of April.
#Fintech#CryptoAssets#Stablecoins#Tether#Circle#DFC
·news.bitcoin.com·
Circle to Issue Weekly USDC Reserve Reports
Deceptive representations involving the FDIC’s name or logo or deposit insurance
Deceptive representations involving the FDIC’s name or logo or deposit insurance
"Representations about deposit insurance may be particularly relevant with respect to new financial products or services, especially those involving new technologies such as digital assets, including crypto-assets. New technologies may yield significant benefits for consumers, workers, and small businesses. Nonetheless, especially with respect to new technologies, some market participants may seek to entice consumers to use their products or services by deceptively advertising that uninsured products or services are FDIC-insured. These misrepresentations disadvantage financial institutions that truthfully market FDIC-insured accounts to consumers. Such misrepresentations also harm consumers, who may find that their assets are not insured in a time of financial distress."
#Fintech#Stablecoins#FDIC#DFC
·consumerfinance.gov·
Deceptive representations involving the FDIC’s name or logo or deposit insurance
Putting the Terra stablecoin debacle into "tradfi" context
Putting the Terra stablecoin debacle into "tradfi" context
"It’s not really surprising that stablecoin issuers keep going back to essentially the same model: people have been fascinated by perpetual motion machines since time immemorial. No one, however, has ever succeeded in making one, because we live in a world of change, and perpetual motion machines only work if nothing ever changes."
#Fintech#CryptoAssets#Stablecoins#Terra#Tether#DFC
·the-blindspot.com·
Putting the Terra stablecoin debacle into "tradfi" context
Tether Required Recapitalization In May 2022
Tether Required Recapitalization In May 2022
"It is well-understood in the cryptocurrency community that Tether’s reserves are a polite fiction. If pushed on this, clueful members of the community, such as their co-conspirators, will (quietly) admit that Tether depends on a de facto guarantee of support from members of its consolidated group, such as Bitfinex, which can inject more equity at will. The community believes, based on prior experience, that there is appetite within the crypto community to conduct “private bailouts” to rescue their central bank if it comes under stress."
#Fintech#CryptoAssets#Stablecoins#Tether#DFC
·kalzumeus.com·
Tether Required Recapitalization In May 2022
Terra Is Back From Bankruptcy
Terra Is Back From Bankruptcy

One model of Terra goes like this: (1) Terra is a company. Not really — it’s a decentralized finance ecosystem, a blockchain, a bunch of independent developers working on diverse projects — but let’s just pretend for a minute. (In fact there is a company-ish thing called Terraform Labs which helps run Terra, and another company-ish thing called Luna Foundation Guard that keeps some of Terra’s money, but here I want to conceive of Terra as a whole as sort of a distributed company.) (2) The Luna token, which powers the Terra blockchain and is the currency of its ecosystem, is the equity of Terra, the stock in the Terra company. (3) The TerraUSD stablecoin (or UST), which was supposed to always be worth a dollar, and which maintained that peg by being exchangeable for $1 worth of Luna at market prices, is the debt of Terra. Like bonds of the company, or like deposits of a bank.

#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·bloomberg.com·
Terra Is Back From Bankruptcy
Tether Launches MXN₮ Tether Tokens Pegged to the Mexican Pesontugrik-tether-tokens-pegged-to-the-mexican-peso/
Tether Launches MXN₮ Tether Tokens Pegged to the Mexican Pesontugrik-tether-tokens-pegged-to-the-mexican-peso/
Tether is launching a stablecoin pegged to the Mexican Peso (MXN₮) with initial blockchain support to include Ethereum, Tron, and Polygon. MXN₮ will join three other fiat-currency pegged tokens Tether has in the market: the U.S. dollar-pegged USD₮, the Euro-pegged EUR₮, and the offshore Chinese Yuan-pegged CNH₮. This marks Tether’s entrance into Latin America that will provide a testing ground for onboarding new users in the Latin American market and will pave the way for future fiat-pegged currencies in the region to be launched.
#Fintech#CryptoAssets#Stablecoins#Tether#LATAM#DFC
·tether.to·
Tether Launches MXN₮ Tether Tokens Pegged to the Mexican Pesontugrik-tether-tokens-pegged-to-the-mexican-peso/
Barclays Warns that "Fully Collateralized" Tether May Be Prone to Downwards Spiral
Barclays Warns that "Fully Collateralized" Tether May Be Prone to Downwards Spiral
"“...Even this arbitrage might not bring the value of the stablecoin back to par, for two reasons. First, investors may begin to have doubts about the underlying collateral backing the token or, more likely, its liquidity and Tether's ability to sell it all without taking a haircut. Second is the practical cost of the arbitrage. The arbitrageur needs to buy the token at a discount in the secondary market and redeem it directly from Tether for its face value. As we note above, Tether does not make this easy or cheap, by charging redemption fees and imposing minimum fiat withdrawal amounts. Related to this, arbitrageurs may lack the balance sheet/capital to absorb all of the desired selling by liquidity seekers, as this sort of arbitrage activity requires deep pockets and a tolerance for potential mark-to-market losses, given the delay between purchase and redemption.”"
#Fintech#CryptoAssets#Stablecoins#Tether#DFC
·bloomberg.com·
Barclays Warns that "Fully Collateralized" Tether May Be Prone to Downwards Spiral
Terra to burn leftover UST (USTC) stablecoins in community pool
Terra to burn leftover UST (USTC) stablecoins in community pool
There is a total of about 11.2 billion circulated supply of TerraClassicUSD (USTC), currently trading below $0.04. About 1 billion USTC remaining in Terra’s community pool will be sent to the burn module and immediately discarded from supply. Terra will then bridge 371 million cross-chain USTC from Ethereum to Terra which will then be burned by Terraform Labs. “Eliminating a significant chunk of the excess UST supply at once will alleviate much of the peg pressure on UST,” the proposal said. The Terra governance has voted to create a new chain, which will ditch the algorithmic stablecoin USTC (formerly UST) in the old blockchain which has been renamed Terra Classic.
#Fintech#CryptoAssets#Stablecoins#Terra#DFC
·forkast.news·
Terra to burn leftover UST (USTC) stablecoins in community pool
There's no such thing as a safe stablecoin
There's no such thing as a safe stablecoin
"Stablecoins aren't stable. So-called algorithmic stablecoins crash and burn when people behave in ways the algorithm didn't expect. And reserved stablecoins fall off their pegs - in either direction. A stablecoin that does not stay on its peg is unstable. Not one of the stablecoins currently in circulation lives up to its name. "
#Fintech#CryptoAssets#Stablecoins#DFC
·coppolacomment.com·
There's no such thing as a safe stablecoin
Managing the failure of systemic Digital Settlement Asset (including stablecoin) firms
Managing the failure of systemic Digital Settlement Asset (including stablecoin) firms
The U.K. government proposes to amend its Financial Market Infrastructure Special Administration Regime to bring crypto-assets within the jurisdiction of the Bank of England while giving the institution the reins in the event of a collapsing stablecoin. One proposed amendment includes broadening the legal definition of a “payment system” to include crypto-assets, providing the central bank with regulatory powers under Part 5 of the 2009 Banking Act. The government clarified that the central bank will only step in during “systemic” collapses, which it defines as any “deficiencies in [a system’s] design or disruption to its operation may threaten the stability of the U.K. financial system or have significant consequences for businesses or other interests.”
#Fintech#CryptoAssets#Stablecoins#UnitedKingdom#DFC
·gov.uk·
Managing the failure of systemic Digital Settlement Asset (including stablecoin) firms
Japan Passes Crypto Stablecoin Bill That Enshrines Investor Protection
Japan Passes Crypto Stablecoin Bill That Enshrines Investor Protection
Japan’s parliament passed a bill that classifies stablecoins as digital money that must be linked to a currency that is legal tender and guarantee holders the right to redeem them at face value. The legal definition means stablecoins can only be issued by licensed banks, registered money transfer agents and trust companies. The new legal framework will take effect in a year, and Japan’s Financial Services Agency will introduce regulations governing stablecoin issuers in coming months.
#Fintech#CryptoAssets#Stablecoins#Japan#Regulation#DFC
·bloomberg.com·
Japan Passes Crypto Stablecoin Bill That Enshrines Investor Protection
Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel
Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel
"In conclusion, design flaws in the no-arbitrage mechanism contributed to the failure of the IRON stablecoin. That said, the design flaws we uncover in this paper are not easily fixed. For instance, using the spot price as opposed to the ten-minute weighted-average price of TITAN in the creation of IRON is susceptible to manipulation of the spot price. It remains to be seen whether future generations of algorithmic stablecoins can improve these issues. For now, our results serve as useful reminder that some stablecoins are not stable at all, particularly for the users of smaller accounts who bought into the falling knife when IRON was tumbling."
#Fintech#CryptoAssets#Stablecoins#DFC
·federalreserve.gov·
Runs on Algorithmic Stablecoins: Evidence from Iron, Titan, and Steel
How to Build Trust – USDC Audits and Attestations
How to Build Trust – USDC Audits and Attestations
Circle's Chief Financial Officer explains the difference between stablecoin audits and attestations. An audit is an assurance engagement that verifies the accuracy of financial statements and is typically performed annually by a public accounting firm. The audit verifies the accuracy, completeness and composition of the reserve and tests the internal controls over financial reporting that ensure financial statement accuracy. In an attestation – the accounting firm “attests” to the accuracy of a set of statements. It is different from an audit (it makes little sense to test financial controls monthly, for example), but it provides the same standards of assurance over the statements.
#Fintech#CryptoAssets#Stablecoins#Circle#USDC#DFC
·circle.com·
How to Build Trust – USDC Audits and Attestations