An unstable encounter with a $50 billion stablecoin
Why just focus on this crypto scheme?
The Western financial system is sitting on a quadrillion dollar financial derivatives bubble. There’s a new generation of MBS and other instruments waiting to collapse.
You don’t hear many people talking about solutions, like breaking up the banks (Glass-Steagall), shutting the Fed down and converting it into a National Bank for funding new generations of infrastructure and great projects, like the US used to do. We do hear about governments trying to introduce digital currencies and reduce food production by paying farmers to destroy their crops, or even going directly after people’s farm land, as we see in the Netherlands (under the insane lie of wanting to fight climate change).
I think people need to be thinking and debating in terms of the bigger picture, because this single issue stuff, whether digital currencies, banking, trade, none of it gets at the big picture.
Are we still allowed to talk about the big picture? It’s almost as if people are discouraged from doing so. And that fits perfectly well with our age of specialization where people can study trees and still know nothing about leaves. That’s what these discussions of the financial crisis sound like. We need a new global financial architecture.
Matt I admire this work above and beyond most everything else you do! Why? Because it’s so fucking HARD to read. And in this time of swatting at the nearest info-mosquito that’s got to be healthy. So I’ll knuckle down and do the work. You have. I salute you!
Hey Matt - I got an automagic email from you this week about my upcoming subscription renewal. I set it a aside thinking maybe I'd cancel: you haven't published much lately. But, I also reflected on your great work this past year. When I was in the biz (30 years before I got out) the main rule in investigative reporting was if you want to uncover the real story, FOLLOW THE MONEY. I'd forgotten how well you do this. Your shovel works overtime.
Too many people think following the political news will tell them what's going on in the world. That's one of the devil's great deceptions. FOLLOW THE MONEY. Economics reporting is where it's at.
I look forward to more great reporting TK.
These Circle people sound like jerks.
Makes me glad that I am such a dinosaur and never got on the virtual currency rollercoaster.
OMG!!! I am a simple woman and this article makes my head hurt… I don’t pretend to understand Crypto but wasn’t Crypto supposed to free us from government and Wall St? Sounds like more of the same Wall St and govt economic shenanigans that will eventually screw the hard-working taxpayer.
Ayn Rand explained that we are three actors: producers, looters and moochers. Our problems are the result of the rise of looter power. Blackrock and Joe Biden are examples.
I may be uniquely uninformed about this area, but just thought I'd leave some feedback in case it's helpful. For me, the article was/is somewhat confusing. I found myself on several occasions having to do reference searches on things like RRPs or even USDC to be able to follow along, the latter of which in particular seems like it should be unnecessary given its central nature to the story. In USDC's case, simply going one step further and explaining that USDC is redeemable for dollars held in reserve through mechanisms like the BlackRock fund would have made the early part of the article much more clear to me. You already said that it's a stable coin, but there are different strategies for how stable coins can achieve stability, so to me that bit of extra information helped solidify what we were talking about here.
I'm honestly still a little bit confused about the use of RRPs since from my understanding the purchaser of an RRP would be viewed as the lender and I would assume that the fund "investing in RRPs" would make them the purchaser. However, the article later says that the fund terms allow it to "burrow" up to a third of its reserves. Is this talking about a different provision, or do I have it backwards? Either way I can see that a reserve fund intended to back a stable financial asset being held in non-cash assets would be a concern, but the discrepancy makes me wonder what other parts of this I may not be understanding.
It's also not clear to me who's playing the role of exercising this clause of the agreement. Since BlackRock is managing the fund would that mean that they're the ones purchasing RRPs to back the fund? The article seems to say that it's Circle, but you also say that Circle is backing their USDC with lots of other things not in the fund agreement like corporate paper. Are these other holdings coming through separate agreements then, or is this a case where different parts of the chain are playing their own games (i.e. BlackRock is backing its part of the funding chain with a mix of RRPs and cash while Circle is backing USDC with a mix of the BlackRock fund, which it treats as "cash" in its statements regardless of what BlackRock actually backs the funds with, and other assets)?
In terms of general flow, the frequent dips into other subjects like prior examples of financial malpractice (e.g. Chase) or going through key players' prior crimes and settlements also made it kind of hard for me to track the story overall. This could be more just the fault of my general confusion. There were other confusing elements to the article, but I'm not trying to turn you into my own personal explainer-of-all-things-finance.
I could be off-base, and I'm not trying to say that you need to dumb your articles down to the lowest-common-reader level, which I may very well be. Finance is not my world, and I expect in an article like this to do some searching. But it does seem like at least some more background might have helped connect your statements and conclusions and helped folks like me to better follow along.
Probably more than I ever wanted to know about this industry but once again it looks like we have a financial industry that does not have anyone but their top leaders in mind as they do business. I don’t think my trust in these type of companies could go any lower but if it could it just did
I believe I have a good feel for the value of Bitcoin. I think it is real and tremendous. I also think I understand how scammy almost every other crypto currency is. But i can at least understand the appeal of their get rich quick, ponzi marketing. I don’t get stable coins. “It’s like holding dollars.” Just hold dollars?
Nice article. Good work. If you’re looking for trouble , look for the leverage. Indeed, it’s hard to walk into the Vegas casino with other peoples money and not play a few hands. Pretty soon you’re rolling the dice and saying I’ll make it up on the next one!
Hi, gang. I'm here to announce my decision to transition . . .
. . . to my real name :-) I was "William Shayne" for quite a while, but found that writing under a pseudonym made me a little more rabid and a little less careful with language than I ever am when writing openly. So here I am, having undergone gender reassignment surgery---er, changing to my real name--in the hopes of less fallacies in my analyses. Glad to "meet" you.
My hormone of choice is single-malt Ardbeg from Scotland. I am a published crime novelist who writes under Shane Gericke, and spent the first half of my career as a newspaper editor, primarily at the Chicago Sun-Times when it was a national powerhouse. Fun times, but as the newspaper business began swirling the bowl, I switched to cops and robbers fiction.
I remain an old-fashioned, non-woke liberal. I still like guns and support 2A and all the other A's. I despise the bullies of the left and right, believe the oligarchy of corporate and politics is going to kill this nation if we don't wise up and stop them, and I admire Matt for his willingness to dive into cryptocurrencies so we don't have to.
I enjoy your company and hope to contribute.
Amazing job, Mr Taibbi. Just a few weeks ago you told us you had a lot to learn. Still you manage to do this excellent writeup totally free of mistakes or factual faults.
You should however note a couple of things:
- Rightly or wrongly USDC is the most trusted stablecoin in the markets, after the turmoil with 3AC, Celsius and Luna/Terra
- Your article contains a bombshell, since the markets seem to think that USDC is better backed than you divulge (Read as: Very important article for that and the bankruptcy remoteness.)
- Most crypto people, for lack of a proper term, draw a crystal clear line between CeFi and DeFi. Centralized and Decentralized respectively. USDC, Celsius, Voyager and 3AC are CeFi. If you look at the DeFi markets all of the major projects are doing just fine while CeFi, not so much.
Once again, thank you for a great great read. It's going to echo hard in crypto circles.
Thanks Matt, The impending doom of our economy combined with our governments printing 10 trillion in pandemic spending like alcohol fueled sailor's on shore leave and now this revelation smells of total financial collapse in our near future. Looking like my move off the grid, working towards self sufficiency is going to pay off when the perverbial shit hits the fan.
As I was reading your analysis - and feelings stimulated similarly by your first reference to Vampire Squid - I inexplicably began mumbling the words Jon Corzine and MF Global. Those funds, too, did not belong to the segregated account holders (although required by law). Back then it was seen as a guideline and not a rule. Excellent analysis and commentary.
"next thing you knew, they had a $12 billion bomb crater and Elizabeth Warren was screaming at an eye-rolling Jamie Dimon on television."
The apex of Congressional action and Bankster accountability & suffering.
"“We know that a lot of customers get USDC on Coinbase, and we previously said that every USDC is ‘backed by a dollar in a bank account.’ Our language could have been clearer here.”"
Now that our fraud is impossible to hide let's walk back the claims and pretend customers are to blame for their own losses.. it's nice to be in the class of 1% untouchables!!
"“Any case involving alleged fraud will be a matter of great concern to the banking regulators,” said former FDIC General Counsel Mike Krimminger. "
Indeed the job of the regulators is to keep the frauds from public view & impose token fines with no admission of guilt by the thieves!!