Come on folks, neither the author of the post nor any commenter I've seen here as of writing is arguing that we want any more tulip-scam crap or another FTX, which is probably the highest-profile and clearest-cut instance of financial fraud since LTCM or something: everyone is on the same page that we don't want any more pump-and-dump nonsense from crypto hucksters.
But punishing good behavior is a terribly idea at all time and in all places: whatever combination of Paypal, and the regulators, and this Paxos outfit that have decided to raise the bar on Internet money compared to forms of Internet money that we've all taken for granted since forever? That's a good thing.
It's very complicated in the details, but roughly, fractional reserve lending done by traditional banks and the money supply created thereby only works because it's in fact enmeshed in an a stupendous net of regulations, and guaranteed by things like the FDIC, and a bunch of stuff. Fractionally-backed, loosely-regulated Internet money is a very bad idea whether it's stored in MySQL or a blockchain.
If Wall St. has show us anything since 1987 at least, it's that if we don't keep them on a very short leash, they're going to blow up the economy and stick John Q. Taxpayer with the bill as often as possible. This is true whether the database is DB2 or a ledger, which is one of the key points the author makes.
This is an attempt to remain relevant with FedNow instant payments available, nothing more, nothing less. Looking at other jurisdictions with instant payment systems (UPI in India, PIX in Brazil), when these new systems are deployed, volume from for profit instant settlement value transfer systems rapidly diminishes.
I like my banks and other adult financial institutions because I have recourse through federal regulators or FINRA if they cause me harm. I have no such protections with PayPal. The lesson is to have accounts at real banks that plug into real time payment systems, where your funds are FDIC insured or invested in government securities with no risk of failure.
To me that theory sounds plausible, and even better, testable: we'll know soon if that's how it plays.
The comparison made by author and which I'm trying to defend against a pitchfork mob, is between PyUSD and the PayPal "dollars" we've all known and loved since Elon Musk had a receding hairline. And I think the author makes a very convincing case that PyUSD is a strict improvement on the status quo.
So maybe it can get better still, and maybe it will, and maybe FedNow will accomplish that. But better today is better today. I'm only arguing that going after a couple of companies and some regulators that have improved the status quo shouldn't get their teeth kicked in because of what database technology is used in the technical implementation.
Nah, man. The stink is all over crypto/blockchain like dead fish at the corner of the beach. If your product has anything at all to do with cryptocurrencies or blockchain, I'm closing that tab instantly and moving on with my life. I have zero interest in any product associated with a tech that is used solely by hucksters and criminals. They've had more than a decade to find a single usecase other than crime, and they haven't. We need to just ignore these last few stupid projects that are falling out of the pipeline generated by idiotic contracts signed during the 2020 blockchain fraud/hype bubble.
If you end up being wrong, and crypto becomes a globally ubiquitous economic backbone, how will you rationalize having been incorrect in your present view?
You're a long-term hacker news community member. Like all of us, you pride yourself on the rational exploration of technology. Does "They've had more than a decade to find a single usecase other than crime, and they haven't" strike you as a particularly rigorous argument? Why would a decade be the magic number? Might there be more objective or intrinsic metrics of realization of potential than a set number of years? For example, Ethereum invented the crypto app layer and launched eight years ago, so perhaps ten years is both arbitrary and incorrect?
You seem to be somebody who is certain that crypto is- paraphrasing- useless for anything but crime. Given your conviction in this view, what up-to-date evidence do you have? For example, how would you contrast the capabilities of modern non-blockchain payment systems, like FedNow or India's UPI, versus the emerging network of public blockchains? If you can't answer the question, maybe your strong conviction is unjustified?
It seems that many technologists in the HN community have been whipped into an anti-crypto frenzy by crypto's many scams and now, blinded by rage and disgust, are unable to pursue any semblance of the kind of rational inquiry that otherwise is a fixture in their intellectual lives.
I'll rationalize it by being wrong. It's happened before, it'll happen again. But given that all the blockchain/crypto community has to show so far is "a really crummy database" and "a way for criminals to more easily avoid repercussions," I'm feeling pretty good about this one.
I say this as one strident HN loudmouth to another, not as a guy in a glass house with a rock in his hand.
If you have a substantive argument about how PayPal, or Paxos, or the regulators have blown this, or why it's a net-negative, or why this case is so exceptional that you aren't "closing the tab" this time: I will listen with avid interest, and I imagine everyone else on the site will do the same.
But as someone who takes too many cheap shots at groups of people too large and too diverse to generalize about too often myself: chip in on all of us being better.
If you think it's a bad thing, explain why. My read is that it's a net improvement in a flawed world, and if I've got that wrong, I'd like to get un-wrong.
But it's pretty much an unwritten rule of HN that "shitty X technology" and cavalier uses of the word "criminal" are party fouls (which I still make, I'm also working on this).
My read is that the consensus view of the community is that prohibition of e.g. drugs or prostitution or selling sex toys or whatever is stupid and ways around those things are necessary, and I'm basically sure that it's a consensus view that there are regimes in the world where being a criminal is the only ethical move. So even if "Bitcoin is for Drugs", I still think an argument with some meat on it's bones is merited here.
I appreciate that at an individual level it's reasonable to "close the tab" on a whole space when you're fed up with it, that's your prerogative.
But in terms of trashing the work of everyone who has worked on a blockchain in a public forum: `git` is a blockchain by any reasonable "degenerate Merkle tree" definition. Barbara Liskov who is the first female Turing winner (and would have gotten her Turing a lot sooner if it weren't for sexism) has been running a research group at MIT on PBFT for like 10 years. IO-HK has more Turning/Able/Fields-type folks than fucking Google per capita and might be pushing RenTech per-capita.
In 1995 the Internet had like three massive use cases: Usenet, penis pill spam, and porn, and by egress, mostly porn. Nothing wrong with porn, but but nothing wrong with some idiots trading Pokemon cards of monkeys for too much money either if this is a free country.
Tulip-scam Level 1 blockchains with a clear incentive for the treasury holders to make transactions expensive because they want to pump the fuck out of some stupid token and skip town before the bill comes due? Yeah, I think we're over that now.
But take it up with Linus and all the fucking Turing winners if you think the tech never has and never will have any legitimate application.
Neither [1] nor [2] contain the word "blockchain". I don't think you get to retroactively claim those projects & research as part of the blockchain movement. It was a nice try, though ;)
IO-HK's products page is just a list of 2020-era buzzwordy wallet & smart contract junk I've never heard of that all smells like dead fish.
There's nothing retroactive about it: I've been in the distributed systems space since I met the former Akamai guys who founded Basho and built Riak in 2008.
so cool it with the "nice try" stuff and read up:
"Hash trees are used in hash-based cryptography. Hash trees are also used in the InterPlanetary File System (IPFS), Btrfs and ZFS file systems[4] (to counter data degradation[5]); Dat protocol; Apache Wave protocol;[6] Git and Mercurial distributed revision control systems; the Tahoe-LAFS backup system; Zeronet; the Bitcoin and Ethereum peer-to-peer networks;[7] the Certificate Transparency framework; the Nix package manager and descendants like GNU Guix;[8] and a number of NoSQL systems such as Apache Cassandra, Riak, and Dynamo.[9] Suggestions have been made to use hash trees in trusted computing systems.[10]" [1], and if you still have a difference of opinion, get Wikipedia edited if you can.
You know, all those dead fish smelly things from the 2020/2021 hype bubble, just like this junk from Paypal, and whatever IO-HK is faffing around with. You don't get to claim all possible usages of a tree data structure as retroactively part of the blockchain movement.
There's a limit to how deeply I'm going to nest a thread with someone who seems to have already made up their mind: after 15 years on this site, I'm starting to get it into my head that "winning" an HN fight might be fun in the moment, but as my grandma used to say: ain't no money in it.
And I think we agree about the failure of what used to be called "Web 3": it was an experiment that became a hype cycle that got hijacked by the unscrupulous and my bet is that history will mark the spectacular collapse of FTX last fall as the "end of Web 3".
But behind all the headlines and scandals and shit, a lot of serious distributed systems pros were doing real research and writing real code, and that stuff represents a bunch of tools in our toolbox as engineers that we didn't have 5 or 10 or 15 years ago, and I think it's foolish to throw the baby (tools) out with the bathwater (exit scam scandals).
All you have to do is pick up a newspaper on either side of the blood/crip political knife fight and you'll see a bunch of problems that the Internet created directly or indirectly and haven't solved yet, and many if not most of them are related to "proving things".
- We're having arguments about vote tallies, and who "double spent" their vote
- We're having arguments about who created a piece of IP that got vacuumed up by a big AI model
- We're having arguments about who should be able to post their views on the Internet (i.e. at all) and how to prevent political grand mal seizures from censoring dissenting opinion
- The story on international remittances is still a nightmare, and wildly impacts some of the most vulnerable members of our global community
- USDC or something is still the only way I know about to get paid by an overseas employer in any kind of timely way without a nightmare set of bank interactions and also be totally above-board regarding e.g. taxes and stuff
The list goes on, and while I don't think this is totally demonstrated yet, as a long-time distributed systems guy, I think it's at least plausible demonstrably (and in my opinion even pretty likely) that some of the tools that went in the toolbox in the last 10 years (and got inadvertently funded by token scam assholes: win) are pretty friggin adjacent to any solution I can think of to any of these.
> Neither [1] nor [2] contain the word "blockchain". I don't think you get to retroactively claim those projects & research as part of the blockchain movement.
Curiously, Crypto-critics like to do the same, aka Ben McKenzie / Stephen Diehl "it's 30y old technology".
I agree that it isn't helpful to use "blockchain" to mean git.
That's simple prejudice. It's a very effective strategy for protecting yourself in the world, but it is also manifestly unfair to the technology that you are maligning (and more importantly, its proponents and practitioners).
Pretty sure GP meant that maligning a bunch of serious engineers because a 1-bit generalization lumped them in with a bunch of scam artists is prejudice.
Oil companies employ large numbers of serious engineers. If I make a 1-bit generalization that I don't want fracking or drilling or refining in my neighborhood, or anywhere in the world for that matter, I'm now guilty of "prejudice" because I'm maligning those serious engineers and their work?
I honestly have no idea what the point of your comment is, other than deflection, I guess. What does Barbara Liskov have to do with either of my comments?
If you don’t care who that is, what they work on, the results of it, and don’t think this merits walking back the blanket slurs then I’ve got nothing for you.
Let's start with what seems to me like a pretty nasty and pretty ill-informed blanket dismissal of everyone who works in the traditional energy business. There are some pretty serious downsides to the way we use fossil fuels as a society, but it's a hard problem that a lot of well-intentioned and wildly qualified people are working on around the clock. I don't know you, so you might be in some wild tail of the distribution who isn't enjoying reliable base load electricity via those people's efforts, but you're posting these comments on a computer, which means it's impossible that you're not at the end of a supply chain that only exists via their efforts. So let's start with fuck that.
From there it's (heavily) implied, but we move on to effectively asserting that anyone who has touched a byzantine fault tolerant consensus mechanism is a priori also someone who should be slammed into a 1-bit, good/evil generalization.
It takes 30 seconds of reading the rest of the the thread, or twice that searching, to know who Ms. Liskov is, and enough about her achievements to understand why she is a recipient of the most highly regarded award in computer science. Which makes it's a very dicey proposition to sweep that into the "bad" category of the 1-bit generalization. It takes 2 hours tops to read the Jepsen website enough to know that this technology is a lot more interesting than just "HODL for lambos". So I'm a "fuck that" there too.
You've also managed to wrap some double-digit percentage of all the distributed systems people on HN into this good/evil bifurcation as though doing anything on BFT ever is like selling Oxycontin to teenagers like the Sackler family or something, whether or not any of them ever made a dime speculating on cyber money. So fuck that too.
The word slur doesn't refer solely to racial epithets and stuff like that, a slur can be a backhanded dog whistle as well.
Dude- I made two comments, the point of which, was that using the word "prejudice" against user "coldpie" was hyperbolic and unfair. How you got from those two comments, neither of which mentioned anything about crypto or blockchain, to all of this, is completely uncomprehensible to me, and I'm guessing most anyone else who reads this far.
The trivial prejudice of the other commenter’s initial reply, which they seem to have elected to not double down on is vastly less concerning than your comfort with both embracing a 1-bit generalization and in the same breath maligning the tireless efforts of the kind of engineers that with stupendously overwhelming likelihood make your entire lifestyle possible, and then doubling down on it twice.
It takes a lot to get me to follow someone this far down a reply chain these days, but this is pretty fucking epic.
I think it’s the obligation of the more tenured members of the community to give the less tenured folks some outs when things go a bit sideways. So I’m going to propose two.
The strictly utilitarian game-theory play with zero risk is to concede nothing, walk away, and sink the sunk cost.
The ethical high road answer is to concede that you were out of line and watch all be forgotten thereby, which has a utilitarian premium as well: you’d make a friend.
The stupid answer is to raise 2,6 off suit repeatedly with someone representing suited royalty who has clearly committed to shoving the flop on principle.
You do you, but I see two good calls and one bad call.
I use the word "folks" a lot because it's a gender-neutral informal plural. Historically it would have been "come on guys", but that's not how we talk anymore. There's no attempt to pretend that as software engineer in California that I'm somehow from the Midwest (though my family is in fact from Iowa).
And the modern money system is extremely complicated, and doing a 5 megabyte TED talk on why fiat currency is actually a really good system as long as it's run by well-intentioned people seems out of scope for an HN comment.
I'll politely ask you to rephrase your objections in a substantive way? If I'm peddling "vile trash" I'd like to fix that, but your comment isn't particularly actionable on that.
I think the author is just vastly over-reaching by claiming the regulations around the crypto backed asset is "robust" vs the other being "haphazard". Financial regulations are largely created in response to situations rather than tabula rasa.
The context is that crypto assets are a scam and people constantly got scammed with them, so NYDFS has stepped in and basically said "You know all those practical considerations we've made surrounding reasonable approaches to holding people's money? You get the benefit of none of them". It's much more economically efficient to allow institutions like Paypal do something a little bit smarter than just sit on the money, but there has to be a consideration of risk vs efficiency. What's happened with NYDFS is crypto companies have been so bad that they've basically lost all privileges that make the operation efficient.
Paypal is not a bank. Customers who use it as a bank risk losing some or all of their money. That's absolutely true. But Paypal is pretty clear that money exists in it's system as part of a way of transfering it, not as the equivalent of sitting in a bank. All the major risks of money being in paypayl is that you get scammed sending the money to the wrong person etc.
I don't see the overreach. Paypal, as a party that primarily transfers money, is not being held to the same standards as a bank, but is effectively operating the same way in terms of the types of risk it is taking on with the money it holds. Calling that haphazard seems reasonable to me. No, they probably aren't holding as much of most any individual person's money as a traditional bank, but that doesn't mean the regulations aren't haphazard, it just means the downside risk to each individual is reduced.
We now have stablecoins that are being forced to operate as a stablecoin should. When someone buys crypto that claim to be pegged to the dollar, there should be essentially zero risk of price movement. It's not the digital equivalent of a savings account, it's the digital equivalent of cash.
I didn't expect to feel sanguine about this development when I opened the article, but as it turns out, I do.
These are all super reasonable things though…? (with the caveat you are explicitly dealing with a centralized vendor)
1. Why does the version matter? It all gets compiled down to bytecode upon deployment and maybe the developers chose this version out of familiarity.
2. See the recent cash app glitch for why you’d want to be able to stop everyone transferring if you had a bug. This gives me more confidence than if it didn’t exist like some other crypto projects which get fully drained due to lack of this functionality. (Only for centralized protocols.)
3. Future proofing for AML / terror regulations. Be mad at your lawmakers if you don’t like this. See tornado cash for what happens if you have lack of controls.
4. This is something you absolutely have to have? Like, I don’t get why this is a point at all. How do you expect to credit users if not by increasing the total supply by the dollars they deposit?
Paypal already freezes and seizes money from account holders, not for AML compliance but uh.. just because they can.
This includes rules that they can fine you for "misinformation" (these rules have flip flopped a few times, not sure the current iteration).
Bluntly, I won't do business with Paypal. They do bad business. I encourage you to also not do business with them. Using Eth as a backing token doesn't make it any better when they still have the option to just nuke your money with no controls.
Yeah, seeing what PayPal already does I just wanted to point out that this shouldn’t surprise anyone. If anything this is slightly better because it’s all public. You can see calls to them banning accounts from transfers.
Number 4 being included just peeves me a lot because it seems like proper OOP to decouple increasing supply from any other logic they have to accept deposits.
This is and probably will always be the case for any centralized stablecoin.
Unlike PayPal's traditional "black box" dollars, freezing and burning PYUSD are transparent actions broadcast to the network—it can be publicly analyzed and tracked in realtime.
> It's the PayPal dollars hosted on crypto databases that are the safer of the two, if not along every dimension, at least in terms of the degree to which customers are protected by: 1) the quality of underlying assets; 2) their seniority (or ranking relative to other creditors); and 3) transparency.
I like the pressure that crypto infrastructure builds within. The general discrimination against crypto on the regulatory front creates these outcomes that are better than the other custodial system, and ironically more in line with bitcoin’s original anti-leverage ethos.
What’s missing are consumers that are discerning because there are a lot of ineligible and poorly managed crypto offerings.
So the regulators are helping, the criticism against crypto is helping, but the organizations offering well designed and well managed products are not what people gravitate towards.
Paypal USD’s design is okay, in comparison to their fiat offering, but only due to regulators creating more difficult requirements for crypto. It is anti-fragility in action and something crypto enthusiasts have always appreciated about crypto: how it gets more resilient under pressure and can adapt.
Paypal USD as a stablecoin is unremarkable and has the same arbitrary fund freeze capabilities that Paypal always had, but it’s fungibility and addition to the stablecoin space is an improvement.
Only because New York State makes them back their stablecoin with good assets.
The real question is, if you have PayPal stablecoins, do you have the keys, or does PayPal? Can PayPal take your crypto money away or freeze it, as they routinely do with Paypal-controlled accounts? That's what really matters.
They can freeze it, but on the blockchain. As far as I understand, people can observe how much freezing happens overall, from the blockchain. This is superior feature IMO. There are tons of "paypal froze my money" all over the internet, but it is next to impossible to verify how much that is actually happening. With blockchain-based stablecoins we should know precisely the percentages of money being freezed.
You can withdraw Paypal USD and self custody it onchain, and use it with the same flexibility as any ERC20 token.
But this token does have code to freeze your balance of itself, an action controllable by the token contract administrators, which is Paypal.
this is seen in other similarly structured stablecoins.
but the fungibility of being an erc20 token means offloading it is very easy too, there would therefore be no limitations on transfer amounts, no delay in having liquidity based on the time of day or day of the week. No need to rely on Paypal’s interest in redeeming the token for cash again, as you could just swap them onchain for something else more liquid or more speculative the instant you wanted.
On their website: "Although Paxos has the ability and the right to freeze all USD Stablecoins tokens, including PYUSD, Paxos would only deploy such ability in very limited circumstances. Paxos will report such incidents to law enforcement and/or regulators in a timeline manner, and will freeze certain PYUSD"
Thats exactly what I wrote. A parallel stricter regulatory regime makes it better than the incumbent financial regulatory regime. The irony here is that NYDFS made this regime 10 years ago when there were only small players in crypto, and it was intended to freeze them out of operating, with high requirements. Now, those same actors are big players and additional big players are still entering.
Yes Paypal can freeze PaypalUSD on an address level.
ISO20022 is going to kill all of these intermediaries.
Systems like Australia's NPP and associated PayID/PayTo schemes, India's UPI, US FedNow etc replace all of the middle-men clipping the ticket with a close to direct account-to-account transfer, regulated by the appropriate reserve bank or equivalent.
It doesn't work across currency borders (yet) but as these systems ramp up, with their substantially lowered costs and reduced friction, even the big guys like Visa/MC are going to be affected.
And that's even before the central banks work on create their own digital coins (stable by default because backed by the fiat currency issuer).
I doubt it, it will only solve the case of "pay your friends who you have an already established trust relationships with."
Any transaction with a business or stranger there will still be a market for something reversible, disputable, and with insurance against scams. They also hook into currently exchanges automatically for you when paying overseas and their jurisdiction for pulling back your money is global rather than just in your country.
FedNow is a Zelle/ACH killer, they don't provide direct-to-consumer services and if your bank or consortium of banks ever issues cards/apps that can be used at new POS systems they will have just invented Visa, and there's no reason Visa won't support settlement with Fednow over ACH. You could already cut out Visa with a "Pay with Zelle" type scheme but there's little appetite for it even in countries where their version of FedNow has existed for years.
>You could already cut out Visa with a "Pay with Zelle" type scheme but there's little appetite for it even in countries where their version of FedNow has existed for years.
That is just wrong though - pretty much in every country out there that has a good direct payments scheme exposed to customers, it is gaining market share at the expense of credit cards. Pix in Brazil and UPI in India are only two such examples, in both countries these are well on the way / are the dominant payment mechanism for ordinary consumers transacting with businesses.
AfterPay is just PayPal with a different coat of paint. Hell, PayPal offers an AfterPay like service.
Also reputable lol, the worst businesses needing disputes are national household names. I've gotten fewer issues from random Etsy sellers than my cellular provider.
Payment systems like Central Bank Digital Currencies, FedNow, India's UPI, or ISO20022 won't be able to compete with the broad and deep benefits offered by public blockchains.
For example, using Ethereum L2s or other public chains, anybody in the world with a phone will be able to access American T-Bills and equities, lending products, and much more.
Public chains are a better foundation for a global free market economy, and that includes but is not limited to payments.
I think they already lost. I've been following cryptocurrency since 2014 and it feels no more widely-accepted today than it was a decade ago. If anything, people realized that there's no regulatory body and started the process of exploiting that en-masse. Now you don't know which public chain or L2 network to trust, since half of them rely on $MONEY_CORP and their proprietary bridge software.
The crypto dream is dead. If you didn't sell out at the peak of the bubble a couple years ago, I do feel sorry for you.
No, they don't. If you get scammed on a purchase the bank will simply say "Tough luck!" and ask you to stop bothering them. Credit and Debit cards offer unparalleled consumer protection, that's why consumers give preference to business that accept cards – it takes away at least some of the worry when purchasing.
What I don't understand are the people who - as customers - want to do away with credit and debit cards and replace them with these bank transactions that have no protections.
Don't they have the dispute resolution mechanisms of the country implementing them, e.g. Australia, the US, India? Compared to that, PayPal seems like it'd have weaker dispute resolution mechanisms.
Bit of an odd way to put it, like saying there are X amount of HSBC dollars because they offer X different financial products.
In this case PayPal's core product seems to be the same as always, they've also added a stablecoin product which you can make a conscious decision to buy. Similarly you can move your money into their savings account which offers additional guarantees.
Presumably in both cases they'd prefer funds are kept as a 'standard' PayPal balance that they can invest to make more profit but if you're going to move your funds out of PayPal why not offer these other options.
The author seems surprised that different financial products offer different levels of protection but different levels of risk Vs reward are what the whole financial world is about. So long as consumers are made aware that's fine.
None of this should matter anyway. No one should have any amount of money just sitting in your PayPal account. It should be 100% withdrawn immediately.
1. the old school accounts we all know.
2. the PayPalUSD which, as this article explains, is saver and runs on the ETH blockchain. Moreover, it appears to be trading at 0.99 cents to the dollar. That is an arbitrage opportunity right there.
3. The saving account with 0.85 APY and a federal covering of $250000.
> It would be illegal for PayPal to back its new crypto-based dollars with the assets listed above, yet for some reason it is fine if it backs its traditional dollars with them.
> The second drawback of PayPal's regular dollars is that the assets underlying them don't really "belong" to customers in any strong sense of the word. They belong to PayPal.
> To translate, the assets underlying your $1000 in PayPal USD cryptodollars are not PayPal's assets. Nor are they Paxos's. They are yours. No need to squabble with competing vultures for what's left.
> But oddly, PayPal is under no legal obligation to extend these very sensible protections to all of its regular PayPal dollars.
> the third type is insured by the government up to $250,000. PayPal Savings dollars also pay interest, whereas the first two don't, or are prohibited from doing so. PayPal offers this product in conjunction with a bank, Synchrony Bank, which means this third type of PayPal dollar conforms to an entirely different set or rules than the other two: Federal banking law.
Well the argument completely hinges on the assumption, that this Paxos outfit is not the same kind of shit show practically all the other crypto exchanges/issuers/brokers/funds are. Since the majority of major crypto companies have to be shown to be either incompetent or fraudulent, I for one would not bet on that.
Since there is almost no money to be made with the "stablecoin" business model (at least compared to the profits/illicit gains of other crypto business models), the probability that something shady is going on is unfortunately quite high.
Stablecoins seem like the stereotypical ZIRP (zero interest rate phenomenon).
When you couldn’t get a return on deposits (or safe government debt) anyway, it didn’t seem completely crazy to park your dollars with a company that doesn’t pay interest either, but at least lets you do highly leveraged trading against hapless crypto retail investors around the world.
Now that the crypto retail boom is over and money has a price again, the notion of sending your dollars to a one-horse-show outfit like Tether or Paxos is much less appealing. They can vanish overnight and you don’t even have the $250k federal insurance like on US bank accounts.
You have to ask, who are the people who love this product? Sure, if you make moving dollars easy, there are people who will use it. But is it an investment product at all?
Here’s an example of how Tether gets used in the real world:
“I’d been hearing rumors about illicit uses of Tether—I’d seen court documents containing intercepted messages from a Russian money launderer promoting it to his clients, for one thing—but pig butchering was the most concrete example I found. People around the world really were losing huge sums of money to the con. A project finance lawyer in Boston with terminal cancer handed over $2.5 million. A divorced mother of three in St. Louis was defrauded of $5 million. And the victims I spoke to all told me they’d been told to use Tether, the same coin Vicky suggested to me. Rich Sanders, the lead investigator at CipherBlade, a crypto-tracing firm, said that at least $10 billion had been lost to crypto romance scams.”
Developments in the crypto world have made clear that this doesn't necessarily mean much in this space, so that's why people remain skeptical. Two examples: Prime Trust filed for chapter 11 bankruptcy last month and turned out to have mishandled many millions in customer assets. Fortress Trust was hacked and then bought by Ripple, presumably to cover the losses, just days ago.
Now neither of these are Paxos, and it's possible that Paxos is well managed, but if all the other trees keep falling at some point people are going to judge the forest as a whole.
I used to do some contract work here and there for Paxos, all opinions are subjective and my own etc. The whole thing is a tour de force of the senior heads in the legal department frantically trying to work over, under and around the management crypto bros without them finding out. The churn in some of the departments is over a hundred percent per year. When all is said and done, I find it incredibly impressive that it hasn't gone tits up yet.
Fiat-backed stablecoins have one of the most reliable business models out there: collect money from depositors, buy short-term treasuries with rate X, and distribute interest to holders at rate Y < X (usually Y=0). Excess interest is pure profit.
For depositors, this is safer than a typical bank subject to bank runs - AS LONG AS the issuer actually holds the backing treasuries.
EDIT: Caveat here is the non-treasury part of the stablecoin backing reserve, e.g. reserves put in a bank. If the underlying bank has a bank run, the stablecoin has a bank run too (effectively without any FDIC insurance, since all stablecoin holders are lumped together, easily exceeding the $250k limit).
Point taken. But since it's short-term, as long as they delay deposits for a short time period, there is no problem.
Comparison with bank deposits: Consider March this year, when Circle-issued USDC stablecoin had a "bank run". It wasn't because of their treasury holdings, but because they put reserves in Silicon Valley Bank, which had a bank run. A transitive bank run, if you will. It only recovered because of FDIC insurance, which went above and beyond their legal $250k/person limit.
Treasuries are backed by the full faith and credit of the US government, without any per-person or monetary limits.
Isn't the whole thing conceptually the same as or very close to a money market fund then (absent the specific regulations there)? What is the advantage?
I mean conceptually this is just VUSXX (with a lower interest rate probably), but you can buy something online with it through a PayPal checkout page, or send it to a friend through the PayPal app, or send it across borders in seconds. I do think that has value from an ease-of-use standpoint.
That only helps if the treasuries get redeemed by then (and it also isn't quite what people would expect in terms of liquidity, I suppose. Kind of similar to other options then, e.g., looking at some recent situations, FDIC stepping in also doesn't seem to take forever for retail).
Sure, but doesn't that business model kind of exist then in the form of money market funds (and somewhat related in bank deposits) anyway? What's the new thing from a customer and business perspective?
US treasuries are probably the one thing you can liquidate in huge quantities at par at almost any time. I suppose you're vulnerable to stupid duration mismatch issues like SVB.
If everyone in the street knows you are under pressure, watch what happens - even getting $0.9999 back on the $ of your "deposit" would probably have people being upset. And 7 days to get your money is probably longer that what people expect.
You wouldn’t need to wait 7 days. The price of a short-term treasuries is purely based off of the current interest rates. Given that expectations for rates are generally priced in over a 7 day period, there is very little risk.
> For depositors, this is safer than a typical bank subject to bank runs - AS LONG AS the issuer actually holds the backing treasuries.
And duration is really short, and rates don't shoot up too much. (You have no credit risk (as long as Congress keeps getting their act together wrt the debt ceiling), but still have rates risk, as measured by duration.)
> PayPal's crypto dollars, which are managed by a third-party called Paxos, are 100% backed by the safest sorts of short-term collateral: U.S. Treasury-bills, reverse repo (backed by U.S. government securities), and commercial bank deposits.
I was under the impression that money transmitters do not accepts deposits as such, but can provide other stored value services (but not a lawyer). So for me the whole premise of the discussion feels somewhat flawed.
It largely depends on the state the user is in. In some states, it's basically a joke, and in others, you cannot touch the money or even accept interest on the money. It's a hodgepodge of shit. Basically.
Source: I tried to figure out how to get a license in a bunch of states for a side-project and quickly realized I wasn't rich enough to do so.
Isn't there a transaction cost of holding (well, of using) the stablecoins compared to holding the ordinary debt? That would make the crypto version significantly worse unless you thought there were a chance of paypal going under, in which case the better strategy is to switch to something else (obv not venmo!).
The graph in the article seems to show that a dollar of the crypto is worth 50 basis points less than an actual dollar.
> PayPal will happily seize both on a whim and without recourse.
It is likely that they will way less likely freeze the funds that are stored on the blockchain, as everyone will see it happening real time and the general public can also see how much there are frozen coins at any given time from the total circulation.
Paypal has only little problems freezing their regular USD accounts. Yes, people will complain online, but so what? Regular Joe still will assume that it is just some isolated cases and won't be happening to me. No one outside paypal knows how much freezing is happening, and likely inside paypal as well it is not well known information. Meanwhile, the more they freeze the more they have funds for their own bottom line, so incentives are not very well aligned.
I have a gut feeling that this might be "blockchain fixes it" moment.
> Do not ever leave money you care about in Paypal.
Yes, I agree. However paypal is big incumbetent player on the payment market and these products will likely be popular, so it makes a lot of sense to analyze them in detail.
The PYUSD contract includes an `isFrozen` method that returns true if the address is frozen[1]. Since all of the transfers and activity on this coin happens on Ethereum blockchain, all of it is transparent and trackable by any party.
It's a nice feature you get when building payment infrastructure on a public blockchain, compared to PayPal's traditional black box systems.
It’s par for the course, all centralized stablecoins (including USDC) have a similar feature. PayPal’s non-crypto dollar accounts can also be frozen (but not in a transparent and verifiable manner).
It doesn't matter because only an idiot would let PayPal hold any amount of their funds.
PayPal will arbitrarily freeze your funds, suspend your account, and anything else they can get away with with absolutely no quick recourse on your end.
Use PayPal as a payment system and immediately yank the funds out. Anything else is ferociously stupid.
It seems reasonable to hold a small amount of money there for "operating capital", knowing it could disappear, just as you could lose your wallet. I'm sorry if you consider that ferociously stupid.
If you accept payments via Paypal you can't withdraw money for 21 days, at least that is the case in the company I work for. Explanation is that in case a dispute will be issued so that they can refund, so my guess is large proportion of those funds is such payments being held.
Ah, thanks, that's what I had in mind :)
So while the original advise holds, commercial users are locked out of three weeks of payments of they're frozen for random bs.
I think it depends on the country your business is in (i.e. local laws and regulations) and what is your transaction volume is through Paypal, if you have large transaction volume I am pretty sure you will get better conditions.
Our company has very low volume through Paypal, we only provide it as a convenience and we had to limit payment amount due to fraud we had in the past, so these are likely the worst conditions you can possibly get.
Revolut (if it was a real bank would be the 5th/6th biggest in the UK) has failed dozens of times to get a UK banking licence, it is expected that they will be rejected again on their current application. UK ministers (motivated by donations and board seats from Revolut?) continue to put pressure on the regulator to grant the liscence.
Revoluts auditors BDO stated that they were unable to get a complete picture of some of Revolut’s revenue and as a result it, or other financial balances, could be “materially misstated”.
Former holders of UK banking licences include SVB.
It should be noted that, if I understand the situation correctly, the "SVB" with a UK banking licence was a subsidiary, and it was solvent when sold because the parent company went under.
12 Mar 2023 — The Bank of England (the BoE) will apply to put the UK arm of Silicon Valley Bank (SVB UK) into Bank Insolvency, which is a modified version of liquidation under Part 2 of the Banking Act 2009, on Sunday 12 March 2023 unless a buyer can be found for SVB UK’s business and assets.
When Parent Co goes bust Child Co credit lines go to zero. Even in the UK where ringfencing and regulation makes it very difficult to have more liabilities than assets (as happened with parent co), banks still have to borrow overnight / short term to fund longer term lending. If you cant borrow from the market you are in trouble.
In the US, Zelle for bank transfers, but they also have customer service issues. Also, the recently launched FedNow service offers instant transfers and should begin to eat into PayPal/Venmo/Zelle's business. What they are not is a payment mechanism for purchases, however. There is AdYen, Apple Pay/Google Pay, Stripe and Square for that.
Very few, because operating as an internet money transmitter and also keeping your customers safe is hard. People love to hate PayPal but most of the things they hate are necessary for them to stay in business.
money transmission is hard only because the states make it hard (but mostly just expensive -- IIRC, a license in all 50 states costs about 1.5-2 million bucks a year).
Almost everything related to computer interaction is named with a metaphor, and crypto assets with "coin" in their names are as just as guilty. "Kohl's cash" isn't actual cash, etc.
FWIW, there is also a cryptocurrency called "USD Coin" with a symbol of USDC, which I find roughly equivalent to PYUSD in terms of giving the impression of being actual USD.
Wow, so great, an operator holding billions of individuals' money as a "money transmitter" without any FDIC insurance now is allowed to print their own currency.
Hey friends, try starting a money transmitting business or printing your own money, and see how long it takes to get arrested if you don't have both massive investment and friends in powerful places.
PayPal doesn't deserve to hold this special, seemingly untouchable perch in our economy. If we want the wild west, then let everyone else open up the same business. Otherwise, regulate them like a bank. I hope the DOJ goes after them next.
They're not 'now' allowed to do this, they've always been allowed to in the US. Others such as Singapore and the EU (with MiCA) have by now introduced regulation specifically for stablecoins but US lawmakers have so far failed to do so.
>printing your own money
They're not printing money though. They do the same they've done prior, only now with more transparency. Most HN users have probably interacted with Paypal at some point in their lives, but how many understand what sort of "dollars" they sent or received? Because it's certainly not legal tender. Neither are the digital dollars in your bank account. They're private book money. In the case of banks we outright know most of it isn't even backed by real dollars, thanks to fractional reserve banking. This is a very real concern when you have more money in the bank than the insured amount. And as for Paypal who knows what they're backed by. Holding virtual funds backed by 100% US treasuries is a lot safer than backed by 'trust me bro'.
care to elaborate how is Tether a scam? is it because they earn the yield difference on user reserves while giving nothing to users? if that's so, probably due to how US law views securities. other than that, it appears as though users get exactly what they want from tether, which is: dollars
But punishing good behavior is a terribly idea at all time and in all places: whatever combination of Paypal, and the regulators, and this Paxos outfit that have decided to raise the bar on Internet money compared to forms of Internet money that we've all taken for granted since forever? That's a good thing.
It's very complicated in the details, but roughly, fractional reserve lending done by traditional banks and the money supply created thereby only works because it's in fact enmeshed in an a stupendous net of regulations, and guaranteed by things like the FDIC, and a bunch of stuff. Fractionally-backed, loosely-regulated Internet money is a very bad idea whether it's stored in MySQL or a blockchain.
If Wall St. has show us anything since 1987 at least, it's that if we don't keep them on a very short leash, they're going to blow up the economy and stick John Q. Taxpayer with the bill as often as possible. This is true whether the database is DB2 or a ledger, which is one of the key points the author makes.