$1的神话：稳定币能否逃脱银行挤兑的魔咒？

Original author: Matt Levine

Original translation: Yanan, BitpushNews

Original source: Bloomberg

One thing I often mention is that cryptocurrencies are rapidly learning the lessons of traditional finance, and it’s quite interesting how this is happening. First, it relearns these lessons through sometimes hilarious and even catastrophic events. Second, it tends to learn these lessons in a very clear, concise, and systematic way. Cryptocurrencies are a great teaching tool. For example, if you want to understand the credit crisis, you can choose to delve into the causes and course of the 2008 global financial crisis, which is undoubtedly quite complicated and messy. Or you can choose to study the causes and course of the 2022 crypto financial crisis, which is relatively simple and interesting. In this crisis, everyone involved was tweeting in real time and doing YouTube interviews. Many of the intuitions gained from the crypto crisis are very helpful for understanding the real financial crisis, but in a simpler, more interesting, and more transparent way. I once wrote that “cryptocurrencies are like taking smart and ambitious interns from traditional financial companies and putting them in their own gaming market and letting them play and be the masters.” This is why cryptocurrencies have such unique educational significance.

Stablecoins are a special type of cryptocurrency product that can be considered an abstract representation of a bank. When you deposit $1 with a stablecoin issuer, you receive a receipt, the stablecoin, which says equivalent to $1. You can then use this stablecoin as $1 in a cryptocurrency environment, such as on a blockchain or on a cryptocurrency exchange. It has a trading function, for example, you can use $1 of stablecoin to buy $1 worth of Bitcoin, and the party who sells Bitcoin will receive your stablecoin.

Meanwhile, the stablecoin issuer holds your $1 and invests it in the hope of making a profit. These profits are generally used to pay for operating expenses, executive salaries, etc. And you (or anyone holding a stablecoin) can usually return the stablecoin to the issuer in a shorter period of time in exchange for your dollars. At this time, the stablecoin issuer must pay the $1.

In general, the process is quite similar to bank deposits, although there are some differences. If you know a little bit about how banks work, you can foresee some ways this model can go wrong. Specifically, there are two main situations:

First, when a bank or stablecoin issuer holds your funds, they have the right to invest and keep the profits. The more profit they make from depositors funds, the more they keep for themselves. However, on the other hand, if they lose money on their investments and lose all their funds, then the depositors will have to bear most of the losses. Since the issuer has most of its funds from depositors, there is no more money to compensate them if they lose money.

Therefore, this creates an incentive for issuers to take risks: if the venture capital is successful, they can make a lot of money; if the investment fails, it is other peoples money that is lost.

In this case, a run may occur. The stablecoin issuer may invest all your money in some seemingly very safe projects, but there are some long-term investments among them. However, if all depositors ask to withdraw their funds on the same day, the issuer may not be able to meet this demand immediately. In this case, they may have to urgently sell these long-term investments at a price below cost, and eventually lead to insufficient funds and unable to repay all depositors.

Because this interlocking logic is well known, it has a self-reinforcing nature: if you foresee that a run might happen, you will tend to withdraw your funds first for the sake of safety (before the issuer runs out of funds). And if everyone takes this action, a run is bound to happen.

These two issues are often related, as a common reason for a bank run is that the bank has made bad investment decisions with depositors money. However, they dont always go hand in hand. Its possible for a bank to suffer heavy losses on bad investments and go bankrupt before anyone realizes this and has time to line up to withdraw their money. Its also possible for runs to occur that arent directly caused by investment losses, but rather are caused entirely by a liquidity mismatch between a banks immediate liabilities and its illiquid assets.

In the banking industry, there are a series of SOPs to deal with various challenges. For investment issues, the following strategies are mainly adopted:

1. Prudential supervision: Regulators closely monitor the investment behavior of banks and strive to prevent banks from making adverse investment decisions.

2. Capital regulation: banks are required to hold a certain percentage of additional capital so that even if investments suffer losses, banks can use non-depositors funds to cover the losses.

As for the bank run problem, it is mainly solved through the following methods:

1. Liquidity regulation: Banks are required to maintain sufficient cash reserves to meet depositors withdrawal needs at any time.

2. Lender of last resort system: If a bank has high-quality illiquid assets but faces a situation where all depositors demand withdrawals at the same time, the Federal Reserve will provide a loan to the bank because the Federal Reserve believes that the bank will eventually be able to repay.

3. Deposit insurance: The government makes a promise, If a bank does fail, we will return your deposits within certain limits, so please dont participate in a bank run.

In the stablecoin space, are these measures mostly missing overall? Indeed, there are proposals in the industry that cover some of these measures. However, we have discussed Tether, the largest stablecoin issuer, which ran into trouble in 2019 due to extremely risky investments in customer funds, and its published accounts once showed a capital ratio of only 0.2% (although it has since improved). Separately, we have also discussed TerraUSD, a stablecoin whose investment strategy is almost equivalent to a large number of highly correlated risky assets, which ended up collapsing completely in a run in 2022.

So what would an ideal regulatory solution for stablecoins look like? “Deposit insurance and access to the Fed’s discount window” sounds like an interesting and practical requirement, and as I write this it occurs to me that this has a good chance of becoming a reality within the first year of the next Trump administration.

A more direct and core answer is: Stablecoin issuers should invest funds in relatively safe and highly liquid projects, and they should hold a certain amount of their own capital. In this way, even if the investment project suffers losses, the issuer still has sufficient funds to repay depositors. Of course, on this basis, the specific implementation details need to be further refined.

Gordon Liao, Dan Fishman and Jeremy Fox-Geen, all from stablecoin issuer Circle Internet Financial, co-authored a paper titled Risk-Based Capital for Stable Value Tokens. While Circle has its own interests in lobbying for looser stablecoin regulations, the paper offers some insightful insights into the relationship between stablecoins and the banking industry. One of them is that stablecoins are more transparent than banks in many ways, which is undoubtedly a positive factor, especially for cryptocurrency enthusiasts who are skeptical of the opacity of traditional finance. However, this opacity does not exist without cause.

Liao, Fishman, and Fox-Geen point out that, all else being equal, tokenization increases the likelihood that stable value claims will face coordinated runs. The reason is that tokenization allows the underlying value to be transferred and traded outside the full control of the token issuer. This trading generates secondary market prices, providing an observable signal to the market. Real-time visibility of market prices may exacerbate investor reactions and make issuers more vulnerable to runs. If the ledger is public, transfer behavior will also become observable. Information revealed through observable public signals may lead to overreactions in financial markets and prompt market participants to coordinate runs in global games (Morris Shin, 2001). In other words, if token holders observe a sharp drop in secondary market prices or a large number of redemptions, they may choose to sell or redeem tokens out of panic, regardless of the fundamentals of the asset backing.

In traditional banking, the main reason for a bank run is often that you think other people will run on the bank. Where does this judgment come from? Oh, there are many sources: rumors, bad earnings announcements, flustered TV appearances, etc. A drop in the banks stock price may be seen as a signal that there is trouble with deposits. But this is an inexact science after all. In contrast, stablecoins are traded on the open market, and their price is a direct reflection of the level of confidence in them. For example, if a stablecoin is trading at $1.0002, it may mean that there is no current run; but if it is trading at $0.85, it may indicate that a run is happening.

The main solution to this problem is that stablecoin issuers should keep most of their funds highly liquid.

As the risk of runs increases, the approach to managing financial risk also needs to be different from that of traditional banks. For example, stablecoins backed by fiat currencies will typically hold highly liquid assets, have minimal maturity mismatches, and relatively low credit risk compared to banks. Therefore, given the resilience of the pool of assets segregated for the benefit of token holders, the ability of stablecoins’ capital buffers to absorb financial losses is actually less than that of banks. Tokenizing traditional deposits may increase the risk of runs faced by financial institutions, even if the underlying assets are the same. This is because tokenization makes deposits more susceptible to rapid and large-scale withdrawals, and token holders may be more sensitive to market signals. Therefore, institutions offering tokenized deposits may need to hold more capital to cope with this increased risk, even if their asset base is the same as that of traditional banks. In essence, tokenized deposits introduce asset-liability mismatches similar to those inherent in bank balance sheets, so they may also need to apply similar capital and solvency regimes.

Next, let’s talk about the “blockchain” aspect of stablecoins:

In addition to financial risks, the use of tokenization and distributed ledgers brings with it additional risk considerations related to technology, infrastructure and operations. These non-financial risks have been highlighted in regulatory public consultations and proposals. While advanced cryptography, permanent record keeping and traceable transactions can mitigate certain security and compliance risks, these risks, which are broadly referred to as “operational risks” in traditional banking terms, present challenges when assessing the required capital. This is largely due to the lack of sufficient historical operational loss data and the fact that the entire assessment relies heavily on the specific technology choices. In an environment where infrastructure is rapidly evolving and constantly being upgraded, the technology chosen by the issuer may have a significant impact on the loss-absorbing capital that needs to be prepared.

In other words, we can reasonably assume that stablecoin issuers are less likely to lose users’ funds than traditional banks because their operations are based on blockchain technology, which provides transparency, traceability, and digital nativeness that traditional banks do not have. However, for the same reasons, we can also reasonably assume that they are more likely to lose these funds.

Last year, the US went through a mini-banking crisis, which made me spend some time thinking deeply about the banking industry. I wrote:

Banking is a way for people to make long-term, risky bets without realizing it, pooling risk and making everyone feel safer and more profitable. You and I put our money in banks because we feel that money in the bank is very safe and can be used to pay rent or buy a sandwich tomorrow. The bank then uses these deposits to issue 30-year fixed-rate mortgages. Homeowners can never borrow money directly from me for 30 years because I may need money for a sandwich tomorrow, but they can borrow money from all of us collectively because the bank has spread this liquidity risk among many depositors. Similarly, banks also make loans to small businesses that may go bankrupt. These businesses can never borrow money directly from me because I need the money and dont want to risk losing it, but they can borrow money from all of us collectively because the bank has spread this credit risk among many depositors and borrowers.

Yet the opacity of traditional banking has enabled it to take more risks with its customers’ money. Part of the reason for last year’s regional banking crisis may be that this opacity is no longer as effective as it once was. Now that more information is available online, rumors and panics can spread quickly around the world electronically, and people have more expectations for mark-to-market. As one FDIC regulator put it last year, “The rules of the game haven’t changed, they’ve just gotten more competitive.”

The magic of traditional banking is that banks can make a series of risky investments, pool them together, and then issue senior claims on these portfolios, and these claims are what we usually call dollars: $1 in a bank account is actually $1, even if it may be backed by a bunch of risky assets. However, stablecoins give up this magic: while the value of a dollar stablecoin is close enough to $1 for most cryptocurrency purposes, it has its own trading price. In good market conditions, its price may be $1.0002 or $0.9998, but in bad market conditions, you know that its price may drop to $0.85. This is actually a banking business without the guarantee that $1 in the bank is equal to $1, and the real-time price in the market 24/7 tells you how close it is to $1. This undoubtedly creates new regulatory problems, and it may also foreshadow some new situations in conventional banking in the future.

This article is sourced from the internet: The Myth of $1: Can Stablecoins Escape the Curse of Bank Runs?

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