Thread by @SteeTweets

It's no joke.

Crypto is super volatile.

Stablecoins are used as a:
•store of value (sorry #BTC)
•easy way to calculate trades

The top 3 Stablecoins right now are $USDT $USDC and $BUSD all pegged to the US dollar.

But are they 'safe' as a store of value?

= Thread =

Stablecoins background:

Early on in crypto...

Trades happened between crypto and fiat.

This was a slow and costly process.

Stablecoins solved this issue.

Now most people trade with stablecoins because it's easier to calculate than #BTC.

But they aren't 100% stable...

Stablecoin Tokenomics:

You might notice stablecoins fluctuate in price by a few cents.

This is a simple form of supply and demand.

To keep things stable:
•if it goes above $1 - add to supply.
•if it goes below $1 - take from supply.

Another factor keeps their value...

Stablecoins hold their value in 3 ways:
•fiat-collatoral
•crypto-collatoral
•algorithmic

The 3 stablecoins of this thread are the first kind and easiest to understand.

(I'll cover others in a later thread.)

Let's break it down:

Fiat - Backed Collateral:

$USDT $USDC and $BUSD are all backed by a central institution using fiat - backed collateral.

With a ratio of 1:1

For every $1 token it's backed $1 of fiat cash or debt (as collateral)

And that's the thing...

Most of it's debt.

Let me explain...

If a central institution holds cash they don't profit.

But...

If they loan they money they can profit off the interest.

With $billions being handled even a tiny interest would be large profits.

So...

A tiny percent backing these tokens is cash.

And what's the risk?

A run on the bank:

A black swan event might lead to everyone trying to move their stablecoins into fiat.

While I think it's unlikely...

Analyzing this type of event helps us know the underlying value with these stablecoins.

Could you cash out?

If the collateral is low risk and highly liquid (able to switch back to fiat quickly) - it's likely

If the collateral is high risk and illiquid (unable to switch back to fiat quickly without taking a loss) - it's less likely

Let's take a look:

$USDT Background:

This token is issued by @Tether_to, a Hong Kong company.

On most exchanges, you're able to use $USDT for most pairs.

Given its ease of use - it's the most used stablecoin.

@Tether_to $USDT Collateral:

49.6% of $USDT is Commercial Paper:
Unsecure short-term debt.

This is high risk and not very liquid.

97.1% of reserves are debt of some kind.

Not only that...

They're not audited by anyone.

To make matters worse...

@Tether_to They state on their legal page they can:

"delay the withdrawal of Tether Tokens"

"reserves the right to (give) securities and other assets"

In other words - there is no legal guarantee to get fiat dollars back.

@Tether_to $USDC Background:

Created by @circlepay, headquartered in Boston, Massachusetts.

They work within US money transmission laws.

And they are partnered with @Visa to provide a method of funding from fiat.

@Tether_to @circlepay @Visa $USDC Collateral:

They have much less commercial paper...

And 61% Cash and Cash Equivalents.

Cash Equivalents are low risk and highly liquid.

Commercial paper is 9%

And the rest are other forms of debt.

To keep to the law...

@Tether_to @circlepay @Visa Grant Thornton gives monthly attestation:
-A confirmation that Circle's balance sheet is correct.

They also state...

They are audited but there is less information on this.

As they work within US laws - I don't imagine they would lie about auditing.

Can they cover a run?

@Tether_to @circlepay @Visa With risky debts like commercial paper...

$USDC could fall short
(maybe 10-30% but this is a guess figure)

They'd be obligated to pay until funds dry up.

First come first serve.

@Tether_to @circlepay @Visa $BUSD Background:

This might surprise you...

$BUSD is owned by a New York Trust Company called Paxos (@PaxosGlobal)

They are separate from the company @binance but have a partnership with them.

You're less likely to see this token outside of the Binance exchange.

@Tether_to @circlepay @Visa @PaxosGlobal @binance $BUSD Collateral:

96% is Cash and Cash Equivalent.

It's not clear what these cash equivalents are...

but they get audited by @NYDFS (New York State Department of Financial Services).

Chances are these are all low risk and highly liquid.

This is more promising...

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS If the cash equivalents are liquid enough - they could cover most if not all of the run.

Let's summarize:

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS If there was a run on the bank with $USDT $USDC and $BUSD

$BUSD seems most likely to survive a run on the bank.

(Not Financial Advise)

Now...

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS Analyzing a run on the bank scenario helps us:

•understand these stablecoins underlying value
•position yourself for a worst case scenario.

Remember: we are only comparing these 3 (there are many more)

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS I have tried to keep this thread as simple as possible...

I hope you have a better understanding about fiat-collateral stablecoins so you can make an informed choice where you hold your profits.

I’ll talk about crypto-collateral and algorithmic stablecoins in a later thread.

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS If you wish to dive deeper into this topic...

These are the links I used:
wallet.tether.to/transparency
tether.to/en/tether-rele……
tether.to/legal/
centre.io/usdc-transpare……
circle.com/blog/greater-t……
paxos.com/attestations/
paxos.com/2021/07/21/a-r……

finally...

@Tether_to @circlepay @Visa @PaxosGlobal @binance @NYDFS This thread took a few hours to write.

I'd be grateful if you RT the first tweet.

Also - if you like info on crypto, twitter and writing insights follow @SteeTweets

Any topics you would like me to cover?
Let me know in the comments below.

https://twitter.com/tibo_maker/status/1493954238862565385