VMFXX has federal regulations, where it is _required_ to prove your liquidity reserves _DAILY_. EVERY SINGLE DAY, VMFXX publishes how much money they have that can be satisfied within 1-day, 1-week, and other such benchmarks.
The entire publication is available online, every single day, not only from VMFXX, but also all of VMFXX's competitors (such as SWVXX).
What Coinbase / Binance is doing is "Crappy" because their reporting guidelines are so much worse than what "the real banks" are doing. There's no one checking or double-checking these reserves.
Every single dollar (and even penny) is tracked in a money market fund. The _EXACT_ makeup of the loans is also tracked. The rules for how a "bank run" would be handled, are regulated and stated in advance. Everything has been planned out, discussed, debated, in Congress over-and-over again for the past 100 years as our laws have evolved.
VMFXX handles over $200 Billion of assets, and has been doing so for decades, in a tradition that follows US legal rules for nearly a hundred years (established since the times when the banks did lose a lot of money: back in the Great Depression). Its battle tested, pragmatic, and cheap (0.11% fees/year), extremely transparent, well regulated, well understood.
The comparison to Coinbase and Binance is laughable. There's no regulations, they haven't even been around for a decade, Binance isn't even being checked by anybody (being an offshore accounts), though I admit that Coinbase is at least in the USA and subject to US Law. But even Coinbase's reports on their assets pales in comparison to the information I get from VMFXX's pages.
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I'm trying to show you what a "real bank" does, such as VMFXX / Vanguard, with their "equivalent stablecoins" (aka, money market fund).
No, I mean like when a bank buys government bonds, company bonds, or loans money to customers and businesses.
That's the kind of business that leads to bankruptcy if all your customers suddenly ask for their money back (which you have been lending behind their backs).
> What Coinbase / Binance is doing is "Crappy" because their reporting guidelines are so much worse than what "the real banks" are doing. There's no one checking or double-checking these reserves.
I'm not sure if that's the case, but if it is, then I agree with you.
Crypto exchanges should be the subject of periodic financial audits by reputable firms and as far as I know, some of the more reputable ones are already moving in that direction out of their own free will (to assure customers that are getting worried by their less reputable competitors that are now going bankrupt), even going so far as publishing cryptographic Merkle proofs of crypto reserves (but traditional financial audits are also necessary).
> Every single dollar (and even penny) is tracked in a money market fund. The _EXACT_ makeup of the loans is also tracked. The rules for how a "bank run" would be handled, are regulated and stated in advance. Everything has been planned out, discussed, debated, in Congress over-and-over again for the past 100 years as our laws have evolved.
It doesn't matter, bank runs can still happen when you're in the crappy loans and bonds business.
And when they do, nowadays not only banks get rewarded with government bailouts, but it's always the tax payer that ends up paying the bill, even though those tax payers are not responsible for the bank's risky and immoral (due to lack of customer consent) money managing policies. And the vast majority of those tax payers are not even customers of the bank!
> No, I mean like when a bank buys government bonds, company bonds, or loans money to customers and businesses.
Did you see the asset sheets on VMFXX? Its all government bonds, loans, and so forth. There's no "cash" just sitting there. Its all, completely composed of various kinds of loans (averaging 11-days in maturity).
I've given you a "real bank" (Vanguard, an investment bank specifically but yes, a bank), that's conducting these "loans" / bonds that you're talking about.
I've also brought up SWVXX, Schwab's competitor fund, is a "prime" MMF that consists _mostly_ of commecial paper (ie: loans to non-government entities), with higher levels of risk involved.
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Based on how this discussion is going, perhaps I should focus on SWVXX instead.
There's even "less cash" here than in VMFXX. That's why I'm talking about these money-market funds. These are... the things you're trying to talk about, right? These banks / entities that are making a ton of loans / bonds to each other?
I'm thinking of real-world entities and trying to match them up to what you're talking about. These things have names ya know. They're not just mysterious "banks" out there. People invest into SWVXX or VMFXX, or other such tickers / funds.
> Weighted Average Maturity: 9 days
You see that? It will take 9 days for most of those funds to mature and turn into cash, on the average for SWVXX today. This isn't "cash", its a pile of loans. Very short-term high-quality loans, but its a pile of loans. Is this not what you were trying to talk about?
> That's the kind of business that leads to bankruptcy if all your customers suddenly ask for their money back (which you have been lending behind their backs).
Yes. That's why there's strict liquidity tests, liquidity reserves, and publication requirements for entities such as SWVXX. The risk is real, and we need to keep an eye on it to make sure that Schwab and Vanguard aren't cheating the books.
Those publication requirements simply do not exist for Binance or Coinbase. There's no asset sheet vs liabilities sheets. There's no reporting guidelines. There's nothing.
> I've given you a "real bank" (Vanguard, an investment bank specifically but yes, a bank), that's conducting these "loans" / bonds that you're talking about.
Investment banks are not problematic because the customer is the one who decides how much and where their money is getting invested (therefore he knows how much he is risking, and how it is getting risked).
This is unlike what happens with traditional banks, which is what I was referring to when talking about the crappy loans and bonds business (and lending the customer's funds behind their backs, even if the customer is aware of it and does not consent).
> Those publication requirements simply do not exist for Binance or Coinbase. There's no asset sheet vs liabilities sheets. There's no reporting guidelines. There's nothing.
If that's the case, then I agree, this should change. I would prefer if exchanges themselves would do this and customers would verify this, but even though I'm a libertarian, I wouldn't object to the government requiring reasonable, periodic financial audits of crypto exchanges by reputable financial audit firms because I am in favor of complete transparency[0] (be it regarding government or companies) and I recognize that too many bad apples are entering the crypto business and ruining its reputation (and customers of crypto exchanges are obviously not doing sufficient due diligence).
[0] More transparency can greatly increase the benefits of market-based capitalism, because it works more efficiently (i.e. market participants make better decisions and get more value out of it) when the participants are acting with more information than when they are acting with less information.
> Investment banks are not problematic because the customer is the one who decides how much and where their money is getting invested (therefore he knows how much he is risking, and how it is getting risked).
Do... you know what a MMF is? (money market fund)
A MMF is a federally regulated investment product where 1-share equals $1. Investors invest into MMFs because they are "safe", and have a huge amount of federal regulations to almost-guarantee the 1-share == $1 price point. (but not "totally" guarantee). Small levels of risk are acceptable.
Yes, they're offered by investment banks rather than traditional banks. But the "fundamental trust" that 1-share in VMFXX == $1 is extremely deep.
That's why I keep bringing up this comparison. MMFs are allowed to loan out their money and partake in various investment schemes to generate a yield. HOWEVER, there's reporting requirements, there's investment requirements, there's rating requirements, there's transparency, etc. etc.
All of this giant exercise with crytocoins trying to "make a stablecoin", where 1-stablecoin == $1 all the time is just a crazy scheme to recreate MMFs. That's my overall point and viewpoint.
> That's why I keep bringing up this comparison. MMFs are allowed to loan out their money and partake in various investment schemes to generate a yield. HOWEVER, there's reporting requirements, there's investment requirements, there's rating requirements, there's transparency, etc. etc.
I think that's a good thing, although there are 2 things I disagree with:
1) I believe the investment requirements are a scheme that is unfair and can lead to forced (and unnatural) inequality.
I would replace this with (sufficiently strict) tests of investment knowledge for new investors.
2) In practice the ratings agencies have a less than stellar record, as the way they are set up, they have an inherent conflict of interest. This leads to a false sense of security.
So I would just get rid of these, but I don't see anything wrong with the rest in general (I'm sure there would be some specifics I would disagree with).
> All of this giant exercise with crytocoins trying to "make a stablecoin", where 1-stablecoin == $1 all the time is just a crazy scheme to recreate MMFs. That's my overall point and viewpoint.
It's quite different, as stablecoins can be traded in a completely decentralized way (i.e. peer-to-peer) with blockchain protocols using cryptographic assurances.
But yes, in theory an MMF-backed stablecoin could be traded on a blockchain, and I see nothing wrong with that. That said, an MMF-backed stablecoin would be a bit more risky than a USD-backed stablecoin, due to an MMF being inherently a bit more risky than the USD.
However, yeah.. another point is that the companies that issue stablecoins are also quite far from being sufficiently transparent. They also need to be subject to the same periodic financial audit requirements by a reputable firm as a crypto exchange should!
USDC doesn't keep its USD in "cash". Its claiming its got "commercial paper" backing it. ("Commercial paper" being a codeword for loans, the same 5-day / 9-day loans that make up an entity such as SWVXX). Or government loans, etc. etc. Its the same thing, but worse.
Its no more secure than an MMF as it is. In fact, due to the much weaker reporting guidelines, USDC is likely worse than an MMF like SWVXX.
No stablecoin promises "cash" holdings. Literally none. The best you've got in the cryptocoin world is MMF-like promises, except without any of the MMF regulations.
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There's no guarantees that USDC's backing of "commercial paper" has any good rating at all. What 5-day loans are USDC banking on? Is it Bank of America? Or is it a loan to Binance? No one knows.
> USDC has always been backed by the equivalent value of U.S. dollar denominated assets; USDC reserves are kept in the management and custody of leading U.S. financial institutions, including BlackRock and Bank of New York Mellon
Yeah, I know... what these companies are doing is absolute crap and I suspect that in the future this is going to lead to an even bigger crisis than what's happening right now in the crypto industry.
I suspect that this is a side effect of 1) being impossible to store large amounts of USD cash in a bank, at least without incurring into significant risks of losing it or actually even losing money over time due to negative interest rates and/or 2) being more lucrative to hold these paper products rather than keep everything strictly in cash, perhaps even also 3) lack of moral standards? I don't know.
I think this is even worse than what the traditional banks are doing and I'm completely against it. Especially due to the lack of transparency that you are mentioning.
You mean, like a Money Market fund like VMFXX?
https://investor.vanguard.com/investment-products/mutual-fun...
VMFXX has federal regulations, where it is _required_ to prove your liquidity reserves _DAILY_. EVERY SINGLE DAY, VMFXX publishes how much money they have that can be satisfied within 1-day, 1-week, and other such benchmarks.
The entire publication is available online, every single day, not only from VMFXX, but also all of VMFXX's competitors (such as SWVXX).
https://www.schwabassetmanagement.com/products/swvxx
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What Coinbase / Binance is doing is "Crappy" because their reporting guidelines are so much worse than what "the real banks" are doing. There's no one checking or double-checking these reserves.
Every single dollar (and even penny) is tracked in a money market fund. The _EXACT_ makeup of the loans is also tracked. The rules for how a "bank run" would be handled, are regulated and stated in advance. Everything has been planned out, discussed, debated, in Congress over-and-over again for the past 100 years as our laws have evolved.
VMFXX handles over $200 Billion of assets, and has been doing so for decades, in a tradition that follows US legal rules for nearly a hundred years (established since the times when the banks did lose a lot of money: back in the Great Depression). Its battle tested, pragmatic, and cheap (0.11% fees/year), extremely transparent, well regulated, well understood.
The comparison to Coinbase and Binance is laughable. There's no regulations, they haven't even been around for a decade, Binance isn't even being checked by anybody (being an offshore accounts), though I admit that Coinbase is at least in the USA and subject to US Law. But even Coinbase's reports on their assets pales in comparison to the information I get from VMFXX's pages.
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I'm trying to show you what a "real bank" does, such as VMFXX / Vanguard, with their "equivalent stablecoins" (aka, money market fund).