I was just about to post something along these lines and found this! Thanks @catcow!
- SGTM, let’s do something with USDT…
- Nu picking up the tab for hedges against BTC has to stop…
- Can we get onto an exchange that has support for USD (ie, BTC-e) ?
I see two topics here, one stemming from another:
We want a USD-NBT peg, but to get that we’re actually running a USD-BTC-NBT peg on Poloniex. Since we’re using BTC (a very volatile, yet popular currency) as a proxy for what we actually want to peg our value to (USD, a not-all-that volatile currency), we’re putting something pretty rocky in between two very calm currencies, which means we provide all the benefits of the calm while eating the cost for all the downsides of the rocky. :’(
There’s another currency (USDT) with a lot of overlap, and happens to be backed by USD rather than having a peg maintained to USD. The question becomes… is it safe to start using that currency as a proxy for our aimed for USD-NBT peg (ie, USD-USDT-NBT)? Are the downsides (discussed below) offset by the benefits (avoiding the volatility of BTC)?
Onto the risks of USDT
(Easiest ones first…)
No NBT-USDT pair on Poloniex
This probably isn’t all that bad and I’d bet it’s easily fixable, so let’s punt on this one for now.
Overlap of USDT and NBT
I’m also not all that worried about this one – though I’m new here. (“I’m nu here” ? )
Since USDT is based on Omni, which itself is based on the Bitcoin blockchain, USDT will suffer from all the underlying technical problems that trouble BTC has been running into. The biggest one IMO is the super variable (and sometimes really slow) transaction clearing time – even paying large fees. There are lots of proposed fixes but the problems are still “being fixed”. Nu is still an experiment (so it may have different problems) but so far we’re not seeing the same problems plaguing BTC (ie, Nu transactions clear quickly).
The centralization is an issue for USDT as well, though I’d argue that NBT-users are subject to similar risks with the potentially centralized NSR-holders. The big difference between the two seems to be that while it’s possible that all NSR-holders are the same person, it’s unlikely. It seems like attacking a decentralized anonymous group of people is a bit tougher than suing a single corporation in a single jurisdiction, but again I’m not an expert in this area.
Risks of default and/or regulatory shutdown
The risk of default and shutdown are both valid concerns IMO, even Tether acknowledges something like this in the whitepaper:
We recognize that our implementation isn’t perfectly decentralized since Tether Limited must act as a centralized custodian of reserve assets…
The funds are actually held by Tether Limited, based in Hong Kong – and HK has had some recent scary stuff with the mainland. Further, a company is a company, with their funds held in a bank account somewhere, providing a few avenues for attack. With all the craziness regarding money laundering and calling the act of selling BTC “unlicensed money transmission”, it isn’t impossible that someone says “Tether is facilitating terrorism – shut them down” and while the courts work through this, all those dollars in bank accounts could be frozen. In the case of a full shut-down, all the dollars backing the currency are gone, so it’d be like “taking away the gold standard”…
This would obviously be very sad, but unfortunately that’s the risk when you’re dealing with fiat currency.
OK so what to do then?
I’m glad to see this being discussed because the USD-NBT peg really being a USD-BTC-NBT peg is pretty frustrating to watch.
I don’t think a USDT avenue for liquidity would be a bad thing, but I suspect that the only way to get rid of this volatility problem is to remove automatic pegs involving BTC.
In other words, the goal should be to encourage trading of BTC-NBT, but not hedging BTC into NBT. If people want to hedge against BTC (ie, if they think the BTC price will drop so they dump their BTC for something stable, and then after the BTC price drop they buy back the BTC at a discount), they should do it using real USD in an exchange like BTC-e, not with NBT.
In other words, I don’t think hedging should be a thing we do automatically – I see that as an abuse of what we’re trying to do here with Nu.