Stablecoins 101

[Hydrogen]

Crypto volatility for retailers has been a hot topic. Merchants accepting crypto in exchange for goods can absorb losses if the price of crypto decreases, before its exchanged for fiat.

But not much has been said about crypto volatility on the buyer's end.  

The way markets are structured it is possible to "buy" bitcoin today using a service like coinbase. With the actual buy order being executed hours from when the buy order is placed. Price volatility can affect this buy order for better or worse. Long story short, volatility of crypto can affect buyers as well as sellers.

Buyers of crypto have sought methods of nullifying volatility on the buyer's end. This is where stablecoins enter the picture.

Tether being pegged to the dollar reduces volatility which could be present holding another currency or coin used as a medium to buy crypto. Stablecoins like tether can be exchanged for bitcoin and crypto simultaneously on exchanges. Reducing volatility present using other methods of purchase.

Reducing volatility on the buyer's end is one of the reasons stablecoins have taken off.

....

The other reason stablecoins are in demand is for crypto purchasing in larger sums.

If a whale wanted to buy $1+ million in bitcoin. They would typically have 2 main options.

1.  Banks
2.  Stablecoins

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[mk4]

Just a heads up: one important factor of centralized stablecoins is that they can be locked even when held in non-custodial wallets. Some people think that because something is a "cryptocurrency" and if you held something in your own wallet automatically means that it's permissionless. Really not the case with the USDT, USDC, and such.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets https://bitcointalk.org/index.php?topic=5204055

[crwth]

There's no excuse that stable coins are a thing, and they have been helpful for everyone to trade and accumulate, etc. How about the US Governments want to have their own CBDC's? This is closely related to how they want their system to do and still have that "control" they always want.

[WePiggy]

It would be good to see more pegged currencies rather than just USD coins. The money printer is going crazy so there should be more widely available currencies like the Tether EURO. Pegging to a devalued currency is like devaluing bitcoin itself

[Bravehash]

After all the latest rumors surrounding tether and bitfinex I've decided to swap all my usdt to DAI stable coin instead, it seems things are getting hotter sir USDT right now and anything can happen, I'm not sure about binance exchange since they are also on fire right now, I don't know how safe BUSD is

[Hydrogen]

After all the latest rumors surrounding tether and bitfinex

Bitcoin's 2017 Rise Was Market Manipulation By Tether: Study

Bitcoin’s phenomenal price rise late in 2017 has been attributed to a lot of things: investor enthusiasm, media spotlight, and Asian exchanges. A new paper by an academic famous for spotting fraud claims that the cryptocurrency’s valuation was pumped up through the use of Tether, a coin that trades on parity with the US dollar at three exchanges: Bitfinex, Bittrex and Poloniex. It is issued by Bitfinex, which claims to have dollar reserves in a bank account that are equivalent to the coin’s trading activity. This helps maintain a stable exchange price with the US dollar.

https://www.investopedia.com/news/bitcoins-2017-rise-was-market-manipulation-tether-study/

The media published many accusations surrounding bitfinex/tether since 2017. These rumors are definitely nothing new.

As stated in OP. Banks and stablecoins are the two main paths whales use to purchase bitcoin and cryptocurrencies. A rise in tether purchasing is correlated with increasing bitcoin demand and buying volume. It seems many journalists write about tether and stablecoins without comprehending the basic roles and principles defining how they're used. It leads to uncertainty and many false allegations being made towards bitfinex/tether. Both of whom are very misunderstood.

[VictorProsh]

After all the latest rumors surrounding tether and bitfinex I've decided to swap all my usdt to DAI stable coin instead, it seems things are getting hotter sir USDT right now and anything can happen, I'm not sure about binance exchange since they are also on fire right now, I don't know how safe BUSD is

DAI is not a panacea, it is also subject to management. Currently, there is not a single solution in the crypto currency world for saving and lending crypto currency that does not depend on the speculative BITCOIN exchange rate managed by the main owners, managed volatility is very beneficial for them.

[FinneysTrueVision]

After all the latest rumors surrounding tether and bitfinex I've decided to swap all my usdt to DAI stable coin instead, it seems things are getting hotter sir USDT right now and anything can happen, I'm not sure about binance exchange since they are also on fire right now, I don't know how safe BUSD is

DAI is backed mostly by centralized stablecoins, mainly USDC. If regulators decided to go after USDC then it could collapse the price of DAI. If a major stablecoin like USDT or USDC failed then it could have a big negative impact on the entire crypto market and even fully decentralized stablecoins wouldn't be safe because the collateral backing them would fall below a level where they would lose their peg to the dollar.

[dkbit98]

Stable coins are not so stable if we look at inflation and hyperinflation, but it's more of mind games played with people.
Most stable coins we have today are centralized or fake decentralized, meaning that someone can freeze or reclaim your coins whenever they want.
There are many issues with USDT Tether that is constantly under then they eye of regulators and everyone is waiting for the day when someone will shut this thing down.
Than we have stable coins like BUSD that is operated by CZ and few of his friends, that is even worse than USDT or USDC with all due respect.
It is much safer to hold Bitcoin long term (you can still use stable coins for short term trading), because I am sure in few years many of this stable coins won't even exist and Bitcoin will remain.

[Bttzed03]

~ Buyers of crypto have sought methods of nullifying volatility on the buyer's end. This is where stablecoins enter the picture.

The importance of stable coins have been more evident to me when I saw many newbie enter crypto because of the P2E trend that was made more popular by blockchain game called Axie.

I witnessed how many of these P2P sellers would charge more fee for fiat/coin pair over fiat/stable coin. I understand that sellers have to take into account the volatility and charge it to the other party for price protection but that's not good on the side of buyers (especially newbies).

[The Sceptical Chymist]

I guess I don't understand how a stablecoin would mitigate volatility risk when someone's buying bitcoin on an exchange and waiting for the trade to go through and then withdrawing it to a wallet or a merchant.  USDT is pegged to the value of the USD, correct?  This is going to sound very ignorant (because it is), but what's the difference between buying bitcoin with USD vs. USDT, i.e., what's the advantage?

I get what Hydrogen means about the risk of losing purchasing power while you're waiting for your Coinbase purchase to execute, but my other question would be why you would even want to purchase bitcoin on an exchange in order to buy something that you could probably buy with fiat.  If you're using an exchange like Coinbase, obviously privacy isn't much of a concern, so you'd be much better off bypassing crypto altogether and making your purchase with a debit/credit card.

The other reason stablecoins are in demand is for crypto purchasing in larger sums.

If a whale wanted to buy $1+ million in bitcoin. They would typically have 2 main options.

1.  Banks
2.  Stablecoins

If someone could explain to me like I'm a 4-year-old how this works and why stablecoins would help in a case like this, I've got plenty of merits to spread around.

[SFR10]

It would be good to see more pegged currencies rather than just USD coins.

There are a few more on "this" list but after what @mk4 mentioned the other week, do you still want more of those?

A rise in tether purchasing is correlated with increasing bitcoin demand and buying volume.

I've never looked at it from that perspective ^{[make sense]}.

• If you monitor closely some of the huge internal transfers ^{[they're labeled: e.g. this one]} for both "Tether and BTCitcoin", then perhaps you might be able to spot one as an example.

[Hydrogen]

what's the difference between buying bitcoin with USD vs. USDT, i.e., what's the advantage?

One advantage is not having to go through bank middlemen to buy crypto. Who might limit the selection of cryptocurrencies available for purchasing. And the unit volume they can be purchased in. As well as their salesman unit which could try to steer investors into buying a coin other than what they had originally intended.

Bttzed03 might have nailed another advantage above. Bitcoin ATMs can charge 20% above current market costs. Stablecoins could allow a person to avoid those price mark ups to some degree. The stablecoin business model could be more volume based than single point of sale based. Similar to walmart when their business model was all the rage, pre amazon era. Stablecoin profit margins could be smaller but can more than make up for it with higher volume, over the long term.

[mk4]

Stable coins are not so stable if we look at inflation and hyperinflation, but it's more of mind games played with people.
Most stable coins we have today are centralized or fake decentralized, meaning that someone can freeze or reclaim your coins whenever they want.
There are many issues with USDT Tether that is constantly under then they eye of regulators and everyone is waiting for the day when someone will shut this thing down.
Than we have stable coins like BUSD that is operated by CZ and few of his friends, that is even worse than USDT or USDC with all due respect.
It is much safer to hold Bitcoin long term (you can still use stable coins for short term trading), because I am sure in few years many of this stable coins won't even exist and Bitcoin will remain.

It's probably a safe assumption that the word "stable" in "stablecoin" means stable against the US dollar, not necessarily stable value in general. But I do agree that bitcoin is the "safest" hold, the one that's far more guaranteed to not be taken away from you; short-mid term volatility aside.

[Lucius]

There is no doubt that stablecoins facilitate transactions and this is clear to everyone - because if you try to send $1000 from your bank to a crypto exchange, it can take a few hours or even days - and if you have 1000 USDT, then it takes a few minutes. But if we try to see what the implications of a possible government ban for such currencies are, then we have a potential bomb that could explode at any moment and cause enormous damage to the crypto market.

The controversy over how the USDT was actually backed up has been going on from the very beginning and continues even today, and obviously, investigators are not yet intelligent enough to figure out how to put an end to it. Just these days, news has surfaced of a new investigation being directed against "executives of Tether Ltd", but when you have enough money and top lawyers then it all ends up paying fines.

The DOJ’s investigation is focused on activity from Tether’s early days, probing whether the company misled banks by hiding the fact that transactions were linked to cryptocurrency, Bloomberg reported Monday, citing three people with direct knowledge of the matter who asked not to be named because the probe is confidential. Federal prosecutors have sent letters in recent months to individuals alerting them that they are targets of the investigation and that a decision on the probe could be made soon, according to the news agency.

[The Sceptical Chymist]

There is no doubt that stablecoins facilitate transactions and this is clear to everyone - because if you try to send $1000 from your bank to a crypto exchange, it can take a few hours or even days - and if you have 1000 USDT, then it takes a few minutes.

Really?  Does it take that long to transfer funds to an exchange like Coinbase?  When I used them years ago it didn't take anywhere near that long.

And I still am not seeing how obtaining USDT is faster than transferring money onto an exchange.  How do you get the USDT in the first place?  Stablecoins are only available on exchanges, right?  I'm asking these questions sincerely, as I really don't have a clue as to how they facilitate anything.

One advantage is not having to go through bank middlemen to buy crypto. Who might limit the selection of cryptocurrencies available for purchasing. And the unit volume they can be purchased in. As well as their salesman unit which could try to steer investors into buying a coin other than what they had originally intended.

OK, again....if I want to avoid using a bank by using a stablecoin instead, can you walk me through how that happens (like I'm a 4-year-old)?  I'm probably being thick-headed, but I just don't get it.

[paxmao]

I take it that you mean volatility other than the one you already have when buying with USD? I think there is a mix of things in your post. Firstly, temporal volatility that happens when the order in not executed immediately. I do not see how that can be an issue if you have an account in coinbase or any other for that matter where an order is executed in seconds.

Then you may have currency volatility, which is high no matter which fiat you choose. Since a stablecoin is pegged to USD, I do not see how does its use improve this. I think I am missing your point.

---

As stated in OP. Banks and stablecoins are the two main paths whales use to purchase bitcoin and cryptocurrencies. A rise in tether purchasing is correlated with increasing bitcoin demand and buying volume. It seems many journalists write about tether and stablecoins without comprehending the basic roles and principles defining how they're used. It leads to uncertainty and many false allegations being made towards bitfinex/tether. Both of whom are very misunderstood.

Whales using banks and delayed orders? Is there any proof or verification of that? Whales will have one or many accounts or use a trading firm.

[teosanru]

Just a heads up: one important factor of centralized stablecoins is that they can be locked even when held in non-custodial wallets. Some people think that because something is a "cryptocurrency" and if you held something in your own wallet automatically means that it's permissionless. Really not the case with the USDT, USDC, and such.

PSA: Most Stablecoins Can Be Frozen, Even in Your Own Wallets https://bitcointalk.org/index.php?topic=5204055

I agree, for me, the USDT coin is so good because it can be stored in any Ether wallet pretty easily, you can put all your tether into MEW and probably forget about it during a bearish phase, this would protect you from market volatility and at the same time, they are safe. Also without stablecoins you generally will need to withdraw the funds to your bank accounts creating unnecessary tax burdens on you but stablecoins have solved even this problem too. The best thing that has come out recently is staking of USDT too, if someone is worried that their money which would have earned some interest in the bank is lying idle in Tether, they can opt for this Staking too, the APR generally is around 4-5%, which is better than the Interest rate of many developed countries.

[Steeley]

this is an excellent full study on stable coins by InvestAnswers on youtube. Encourage everyone to follow this guy:

https://www.youtube.com/watch?v=2pvf9JnuEfE

Steeley

[Lucius]

Really?  Does it take that long to transfer funds to an exchange like Coinbase?  When I used them years ago it didn't take anywhere near that long.

For someone like you who lives in the US, this may not be a problem - but for everyone else, here's what Coinbase says when it comes to fiat deposits.

Purchases made using a debit card or the USD wallet are made available instantly.

When using bank transfers, the ACH bank transfer system is used for payments with your bank account. The ACH bank transfer system typically takes 3-5 business days* (which may be as many as 7-10 calendar days, depending on the timing of weekends and other bank holidays) to complete after initiating a purchase. The timing will be displayed prior to confirming your order.

Since your local currency is stored within your Coinbase Fiat Wallet account, all standard purchases, as well as those made with a debit card, occur instantly. Deposits to your EUR Wallet using SEPA transfers can take up to 2-3 business days to complete.

And I still am not seeing how obtaining USDT is faster than transferring money onto an exchange.  How do you get the USDT in the first place?  Stablecoins are only available on exchanges, right?  I'm asking these questions sincerely, as I really don't have a clue as to how they facilitate anything.

Of course, you have to buy stablecoin first, but then when you have it you get a big advantage because you completely bypass the banking system and stablecoin allows you to do almost instant transactions. Let's say I have the option to buy stablecoins at my local crypto exchange directly for cash or through a bank account, which is almost instantaneous - and then I can send that stablecoin to any crypto exchange in the world.

If you are wondering why not trade at a local exchange, the reason is often poor liquidity and a very large fee compared to, say, Coinbase or Binance.