Are Stablecoins Safe? Should You Own Them?
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 2 February 2022
⏱️ 30 minutes
🔗️ Recording | iTunes | RSS
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Summary
How stablecoins are similar and different from other monetary assets. What are stablecoin risks. Why central bank digital currencies are one of the biggest threats to stablecoins.
Topics covered include:
- Why the Federal Reserve and other central banks are exploring issuing their own digital currencies
- What is the difference between public and private money
- How deposit insurance and central bank actions prevent runs on private money
- How money market mutual funds are a type of stablecoin
- How true stablecoins and algorithmic stablecoins differ
- What is driving the demand for stablecoins
- What are the risks of stablecoins
Thanks to LinkedIn and Policygenius for sponsoring the episode.
For more information on this episode click here.
Show Notes
Taming Wildcat Stablecoins by Gary B. Gorton and Jeffery Zhang
Money Stock Measures - H.6 Release—Board of Governors of the Federal Reserve System
Top Stablecoin Tokens by Market Capitalization—CoinMarketCap
Report on Stable Coins, November 2021—Various US Agencies
Built to Fail: The Inherent Fragility of Algorithmic StablecoinsDr. Ryan Clements
The Quest for a Truly Decentralized Stablecoin by Brady Dale—Coin Desk
Cryptocurrency Doesn’t Amount to Much by Steve H. Hanke and Matt Sekerke—The Wall Street Journal
Related Episodes
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339: How To Make Money with BlockFi, Dai, and the Evolving DeFi Ecosystem
333: How The Covid Shock Nearly Destroyed The Financial System
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Transcript
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| 0:00.0 | Walking the money for the rest of us, this is a personal financial on money, how it works, |
| 0:06.7 | how to invest it, and how to live without worrying about it. |
| 0:09.7 | I'm your host, David Stein, today's episode 373. |
| 0:13.5 | It's titled, Are stable coins safe? |
| 0:17.0 | Should you own them? |
| 0:18.8 | Last month, US Federal Reserve released a research paper on the possibility of the central bank |
| 0:23.7 | issuing its own digital currency. |
| 0:26.8 | The paper defined a central bank digital currency or CBDC as a digital liability of the Federal |
| 0:33.5 | Reserve, a digital IOU. |
| 0:36.6 | The paper dollar is also a liability of the Federal Reserve. |
| 0:40.8 | It's an IOU. |
| 0:42.0 | It doesn't pay interest. |
| 0:43.3 | It doesn't ever mature, but if you look at the Federal Reserve's balance sheet, on the |
| 0:47.6 | right side under liabilities are dollar bills. |
| 0:51.4 | On the left side, under assets are treasury bonds, mostly, and a very small amount of gold |
| 0:58.8 | or gold certificates. |
| 1:00.5 | The dollar used to be a stable coin, in that it was backed by assets, with the idea that |
| 1:07.4 | it would hold its value. |
| 1:09.4 | That's different than stable coins today. |
| 1:12.7 | A true stable coin is collateralized and backed by assets, but can be exchanged for a dollar |
| 1:21.0 | or some other currency at par, at its set, stable price, typically, one dollar. |
| 1:27.9 | But a dollar is always worth a dollar because that's what it is. |
... |
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