006: Stablecoins
The almighty dollar, in digital form. Why use stablecoins over traditional fiat? Who issues these things? Find out in this week’s episode!
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Episode Transcription – Stablecoins
Liam 00:00
You’re tuned in to another episode of Candid Crypto. Liam is back.
Michael 00:05
Yay.
Liam 00:08
Michael discussed some crazy crypto stories from last week. And coincidentally, at the same time, crypto went crazy itself. We saw a big dive in markets across the board. And a lot of valuable cryptocurrencies went down by 50% or more, which-
Michael 00:30
It was absolutely crazy. And just shows you that… As we all know, cryptocurrencies can be extremely volatile.
Liam 00:41
[crosstalk] So, with those, with that being said, there is a lot of attention towards something that is the exact opposite, something that you might consider stable. They go by the name of stable coins, and they remain pegged to the value of the US dollar in a one to one ratio. So one stable coin equals one US dollar.
Michael 01:11
So stable coins are cryptocurrencies, without the volatility. So, especially in the past week that we just experienced, you know, stable coins are very attractive.
Liam 01:22
Yeah, I’m sure there are a lot of people who wish they had converted their cryptocurrency into stable coins, so they could have kept their returns prior to the downturn.
Michael 01:22
Yeah. And really stable coins, they share a lot of the same powers as Ether. But the value is steady– But they utilize things like smart contracts and a few other techniques that make it more like a traditional currency.
Liam 01:56
Why might someone want to use a stable coin, besides keeping their cryptocurrency gains? Is there appeal for stable coins? You know, in other applications?
Michael 02:09
There definitely are, I mean, I think it’s important. I mean, a lot of people use stable coins. So you know, at an all-time high, if they don’t necessarily want to withdraw their money, they can convert their Bitcoin or whatever Ether into a stable coin, they can hold on to that for a while, you know, the value of your stable coins not going to fluctuate too much. And then when you feel prepared, or you want to put it into a DeFi app or something else, you can then do that without taking out your money having that capital gains tax.
Liam 02:46
So why do people trust [crosstalk] in the first place? What gives them value?
Michael 02:54
Yeah, you mentioned it a little bit, but the stable coins themselves are backed by either… There are 4 types of backing to make these stable coins reliable. They are either backed by Fiat, so US dollar, the Euro, Yen, whatever… Any national currency there, you can probably find a stable coin that is backed by one of those Fiat dollars, they can also be backed by crypto. So instead of being one for one with a US dollar something, your stable coin is backed by maybe $2 worth of Ether or $2 worth of BAT. It just depends. But there is that collateral that makes that money there. The whole point about stable coins is they’re liquid because they’re steady, I don’t know how would you [crosstalk]
Liam 03:55
– Is a stable coin, whose value is backed by Ethereum. So Ethereum has to remain at a certain market value in order for [unintelligible 04:07] to actually work properly. And to remain one-to-one with US dollar. There are a lot of different stable coins to choose from. The most prominent being Tether USDT. However, if you read about tether on Reddit, or on Twitter, there’s an entire crowd of people saying that Tether cannot prove its solvency.
One of the first things you see when you go to Tether’s website is their proof of solvency. Now whether you take another word and the 3-page PDF they present as truthful is ultimately up to I suppose the person purchasing Tether, but Tether [phonetic 04:49] seems to work for a decent set of individuals and markets. The amount that’s traded in 24 hours is bonkers. I mean, yesterday I saw that the amount of Tether traded was about $230 billion, and today it’s 201 billion, with a market cap of 61.1 billion Tethers.
The proof of solvency on the tether website shows that they have a little over $2 billion in the bank. But their market cap is 61 billion.
Michael 05:21
And you know, because it’s a stable coin, they’re saying that their entire market cap $61 billion is 100% backed with $61 billion worth.
Liam 05:33
So if you are listening to this, and you have a different perspective on why Tether might have proved its solvency with two and a half billion dollars, yet has a market cap of $60 billion, please get in touch with us, CanadaCryptoPodcast.com, send us an email, shoot us a tweet, we read the stuff we want to know to your viewers, why might Tether be traded in the 10s if not hundreds of billions of dollars worth but only have two and a half billion dollars as proof of solvency on their website.
Michael 06:07
Yeah, and Liam, I honestly think some of it is kind of crypto conspiracy. Like people just want to, they just want crypto to fail. A lot of people want crypto to fail. A lot of people want crypto to succeed. We’re definitely the ladder. But I think they have it. But I will say when it comes to the media and the public, Tether as an organization has not in my mind 100% proven there’s solvency.
Liam 06:40
No.
Michael 06:40
And when we talk about Tether, or if you’ve heard the stable coin USDC, which is a Coinbase, stable coin, it’s important to know that these Fiat back stable coins are backed by a centralized. And they’re distributed by a centralized institution, which a lot of people view as a con, these Fiat backed stable coins.
Liam 07:07
It’s trade off, but the crypto backed stable coins have their own associated-
Michael 07:13
No, absolutely. You need to make sure… The collateral of a crypto-backed one is more than just a one-to-one, it’s typically a two-to-one, or I don’t actually know all the stats, but it’s more.
Liam 07:29
Yeah, so there’s a term in that space that’s used called the “LTV or the Loan to Value Ratio”. To make a long story short, let’s say you want to take out $1,000 loan, you’re probably going to put up $3,000 in crypto. Crypto is that volatile, it can drop that much, and the Loan to Value Ratio typically has to stay at a level of about 66%. Give or take in order to remain solvent on most platforms.
Michael 08:00
Yeah. And I do want to speak to two of the rarer, stable coins. And stable coins that are backed by precious metals. So it is cool. There are different stable coins backed by gold or silver, which I just think it’s cool. It’s not only Fiat, it’s not only crypto, you can actually back it with anything of value. And then the last one that we didn’t mention, and we can’t go into depth with it because it’s not as common and it’s a little bit more technical but algorithmic backed stable coins. These stable coins aren’t backed by any other asset. Instead, an algorithm will set tokens if the price falls below the desired value, and the supply of the tokens if the value goes beyond the desired value. So I do think that’s kind of cool. It’s basically watching the circulation and the supply and adjusting the value based on the supply and demand which I just think it’s cool. It’s automated and algorithmic.
Liam 09:16
Yep, they’re a fantastic instrument for DeFi and practically speaking. If you are interested in obtaining stable coins, you can usually do them through your favorite exchange. Look for something like USDC or USDT, well, maybe not USDT. On and on and on [unintelligible 09:37] as well.
Michael 09:39
I know Gemini even has its own stable coin.
Liam 09:44
Indeed. [crosstalk] that’s the lowdown for stable coins. They’re a little bit of a gimmick currently [phonetic 09:53]. It’s not like you can pick up stable coins and go to the store. But we’re seeing them being used in DeFi and I think they’ll become increasingly prevalent in our lives as we shift toward a new digital age. Powered by Blockchain.
Thank you so much for tuning into Candid Crypto this week. Michael and I are thrilled to be making these episodes and to be interacting with our viewers. It’s been awesome. We’ve really enjoyed it so far. Please check out our website @CandidCryptoPodcast.com. We’re constantly rolling out new content. And I’m going to get the playground started soon The Crypto Playground, you’ll be able to go on there and see the random tokens and Non-Fungible Tokens that I’m building out. So there’ll be all kinds of crypto related, some fun stuff. We’re basically here to learn. And Michael and I feel really strongly that we can learn with other people and build a community of learners and people who are enthusiastic about figuring out what Blockchains are.
Michael 11:00
Yeah, and we don’t want to just make episodes over Blockchain. I mean, there are enough articles and podcasts about that. But it would be cool to have a space where we can engage with each other as a small community. And really, you know, just figure it like you said, just figure out how to do some of these things. How to make an NFT and how to make our own Candid Crypto Coin one day? I don’t know. It’ll be interesting
Liam 11:23
Candid Crypto Coin coming to you soon. All right, ladies and gentlemen, take care and have a fantastic day or night.
