COINBASE for Crypto has come

[Clinamenic]

but where do the dollars in this "pool" come from? they have to come from somewhere

That would depend on whether or not, say, the stablecoin issuers have a supply that is backed by dollars or dollar equivalents. Circle and Paxos, both claimed in a congressional hearing to be fully backed, but the same is not certain for Tether.

 

[vimothy]

Yeah and I suspect that other institution may be something like a market maker for exchanges and other high-level clients, effectively a second-order market maker, which can accommodate high volume conversions between crypto assets and other crypto assets, and between crypto assets and fiat.

someone is acting as a bank for nexo. who? cant be that many options

 

[vimothy]

That would depend on whether or not, say, the stablecoin issuers have a supply that is backed by dollars or dollar equivalents. Circle and Paxos, both claimed in a congressional hearing to be fully backed, but the same is not certain for Tether.

not if nexo is paying out dollars

 

[Clinamenic]

someone is acting as a bank for nexo. who? cant be that many options

I wouldn't say bank so much as market maker. Unless Nexo is taking out loans somewhere, which is possible. I just don't think it's necessary to accommodate dollar functionality on their platform.

 

[vimothy]

if nexo is paying dollars to its customers it must have a source

 

[vimothy]

I wouldn't say bank so much as market maker. Unless Nexo is taking out loans somewhere, which is possible. I just don't think it's necessary to accommodate dollar functionality on their platform.

what's the counterfactual? how do they get dollars?

 

[Clinamenic]

not if nexo is paying out dollars

If the stablecoin issuers have their assets backed by dollars (which I'm not convinced is even necessary, but I also think there needs to be some kind of constraint on their issuance), they could conceivably serve as high-level market makers of last resort, if you will. Or lenders of last resort, but I'm not sure how it would work, or why an entity like Nexo would take out a loan when it can just sell assets it doesn't need in the short term, for dollars it does need in the short term.

But doing so would require that the larger market maker has a big ass pool of dollars to provide liquidity with,

 

[Clinamenic]

what's the counterfactual? how do they get dollars?

Nexo? Or the stablecoin issuers?

 

[Clinamenic]

what's the counterfactual? how do they get dollars?

As in: if they had borrowed dollars, who would they be borrowing from?

 

[Clinamenic]

Another major factor here, is that stablecoins may not need to be backed by dollars, provided there is enough confidence in them so as to render their value autonomous. Effectively analogous to dollars no longer needing to be redeemable in gold, as I understand it.

 

[vimothy]

If the stablecoin issuers have their assets backed by dollars (which I'm not convinced is even necessary, but I also think there needs to be some kind of constraint on their issuance), they could conceivably serve as high-level market makers of last resort, if you will. Or lenders of last resort, but I'm not sure how it would work, or why an entity like Nexo would take out a loan when it can just sell assets it doesn't need in the short term, for dollars it does need in the short term.

But doing so would require that the larger market maker has a big ass pool of dollars to provide liquidity with,

but they cant just create them like they can create stable coins, it's a hard peg

 

[vimothy]

Nexo? Or the stablecoin issuers?

either

 

[Clinamenic]

Another major factor here, is that stablecoins may not need to be backed by dollars, provided there is enough confidence in them so as to render their value autonomous. Effectively analogous to dollars no longer needing to be redeemable in gold, as I understand it.

The argument for dollar backing, in my opinion, is to impose some kind of constraints on the issuers of stablecoins. But if they are tightly regulated, such a constraint may be achievable without the need for dollar backing. In such a situation, it may be deemed to capital inefficient to have 100% dollar backing, but I could be overlooking other critical factors.

 

[vimothy]

As in: if they had borrowed dollars, who would they be borrowing from?

they must have dollars, since they're lending them out, so where did they come from

 

[vimothy]

Another major factor here, is that stablecoins may not need to be backed by dollars, provided there is enough confidence in them so as to render their value autonomous. Effectively analogous to dollars no longer needing to be redeemable in gold, as I understand it.

sure

 

[Clinamenic]

but they cant just create them like they can create stable coins, it's a hard peg

As I understand it, stablecoins can be programmed to track dollar value ("pegged" to the dollar), without being backed fully by dollars.

 

[vimothy]

whatever though if they're lending dollar they must have come from somewhere

 

[Clinamenic]

they must have dollars, since they're lending them out, so where did they come from

My best guess is that they're constantly exchanging between crypto assets and dollars, in order to balance their short and medium term needs, thanks to the liquidity provided by a larger market maker.

 

[vimothy]

As I understand it, stablecoins can be programmed to track dollar value ("pegged" to the dollar), without being backed fully by dollars.

doesnt matter, it doesn't explain the flow of dollara

 

[Clinamenic]

doesnt matter, it doesn't explain the flow of dollara

Well if a stablecoin proves to be reliable, and accepted widely throughout the ecosystem, a supply of them can be sold for dollars, in an off-chain deal. That is, a financial institution can work out a deal with a stablecoin issuer, and give the issuer a bunch of dollars off-chain and receive a bunch of stablecoins on-chain.