Thread by @AlexandraErin

The existence of "stablecoins" (cryptocurrencies allegedly backed on a 1:1 basis by something real, like, for instance actual money) will never not be funny to me.

TetherUSD or USDCoin, "stablecoins" pegged to and allegedly backed by US dollars, are the kind of thing Dogbert would come up with as part of a crypto investment scam.

"If the volatility of cryptocurrency isn't for you but you wish to escape the tyranny of fiat money..."

It seems like the actual purpose/use case of "stablecoins" is to reap the advantages of moving money around using the fake-shadow-money intermediary of cryptocurrency without having to weather as many swings.

Look, I'm not saying "allegedly" because I'm worried their lawyers will think I'm defaming them.

https://twitter.com/MichelleLynneB/status/1395048307337011203

To the people minting the coins... I mean, the purpose of crypto minting is to get more of that fiat money they supposedly hate. Just flat out. Nobody is mining Bitcoin to get Bitcoin, or if they do, they're among the dupes who will be left holding the bag.

"Stablecoin" is a marketing concept to sell to the gullible and the desperate. You hand over your "useless" fiat money, I hand you a "valuable" token... and then I go spend your fiat money because it turns out that it was valuable after all.

If you were only holding the "stablecoin" for a short time because you needed to transfer money without the banks or governments being involved then, eh. Any inefficiency in the system is just the cost of doing business for you.

But if you're "holding" the "stablecoin" in your "crypto portfolio" to "hedge your bets" against volatility... you might as well have kept your money in dollars and put it in an actual portfolio where it could work for you.

Because if the US dollar winds up being massively devalued, your coin pegged to it will be worthless. Nobody will want to buy it because the basic concept is flawed, and you won't be able to redeem it for its "backed value" because... Oops! All Scammers.

The thing about scams... a thing about scams... we all have heard the term "Ponzi scheme". The man it's named for, Charles Ponzi, had a legitimate money-making idea. He had figured out a way to -- for the time -- reliably make money off the difference in international post rates.

This kind of speculation is called arbitrage, and it's a variation of the "buy low, sell high" maxim extended to the other three dimensions rather than time. I.e., buy WHERE low, sell WHERE high, rather than WHEN.

Would Ponzi's legitimate idea have worked? Who knows. If he'd enjoyed spectacular returns executing it, it would have brought attention to the opportunity and that would mean competitors, which would tend to drive the prices back towards equilibrium.

But the reason that Ponzi's name is synonymous with a type of pyramid scheme and not a type of international postage rate arbitrage is... he basically didn't bother doing the real get-rich quick scheme he described to investors.

Maybe because his actual scheme was always to sucker investors in, or maybe he found it was more work than he'd imagined and he thought he could buy himself some time to figure out how to make it work.

Whatever the case, it devolved into an unsustainable scam almost immediately

(The scam was: new people "invested" their money which he promised to buy postage where it was cheap and sell it where it was more expensive, then he turned around and gave their money to the previous "investors", who bragged about their "profits" , bringing more people in.)

There were never actually enough international postage reply coupons in circulation for the amount of money "invested" in his scheme to have purchased, but the man very possibly could have made a comfortable living arbitraging international postage until conditions changed.

I suspect his problem was that he had an idea that he had no capital to leverage at a scale that would be worthwhile, and couldn't convince any legitimate lender to front him the money for it.

Okay, jumping back in this thread now that I've cooled down some: so Ponzi may have been a victim of his own success, but more likely is the scheme just worked better as a scam.

Exploiting market conditions requires more work and puts you at the mercy of those conditions.

Exploiting gullibility only requires you to have an idea that *sounds* plausible, to enough people.

And that's the big idea behind the big ideas in cryptocurrency. The driving economic force behind their creation and adoption are in it for the actual coin, the fiat money. Coming up with novel excuses for the "currency" just extends the scam.