>Question though, do the founders here have any potential criminal liability from this whole situation (including apparently lying about what they were doing with their customers funds)?
While they're not exactly forthcoming with the risks, their marketing pages[1] were also careful to not make any explicit claims of safety (eg. "your principal is protected", or "you won't lose money"). The most that they claimed were "stable" returns. For good measure there's also a disclaimer mentioning the risks.
>There is a range of safeguards in place to help secure your deposits, however holding and depositing stablecoins with Stablegains and third party lending platforms still carries significant risk. Please carefully read our Terms of Use and Risk disclosures in our Learning Center before making a deposit. Any deposit with Stablegains and third party lending platforms is entirely your responsibility. You understand that your principal is at risk.
They claim that the underlying is 100% in custody, yes, but as with all paper, who's to really know in the end...
They certainly don't provide any sort of crypto verification mechanism so the bearer can verify that the underlying actually exist and is uniquely bound to the paper.
[edit]: nevermind. now that I actually look at it, it's cash-settled.
> If i had a account there, i wouldn't allow them to use my money to cover this.
They're...not going to ask your permission?
If you have an account there, they have a large central pile of assets, and a database row saying that you are entitled to X amount of those assets. Someone else has a database row saying that they are entitled to Y amount of those assets.
If someone breaks into the other account, and makes an illicit transfer, then Y goes down and the central pile of assets goes down. If crypto.com makes the other account whole, they simply increase Y back to the original amount. But the central pile of assets hasn't gone up accordingly. They just used "your money" to cover this, and they don't ask you for permission.
When you go to them later and say: "I want to withdraw my X somewhere else", they might say: "I'm sorry, we don't have X right now". That's a run on the bank.
Fortunately, we have protections around specific institutions to prevent these kinds of situations. Capitalization requirements, FDIC, etc. Unfortunately, if you have an account with crypto.com, none of those protections exist for you. You're banking on them having the funds when you ask to withdraw them.
> which legacy bank would be able to redeem all money of all account holders? the answer is: none.
That answer is correct only in a very limited sense. All legacy banks have more assets than (non-equity) liabilities. In addition to that, banks have liabilities with lower seniority than deposits, which take losses before deposits. So yes, if a healthy bank faces a liquidity crisis, all deposits can't be paid out immediately. But they can be paid in full after the assets are liquidated. That's why banks are not huge scams. They are machines that create long term lending from short term borrowing, which actually is a useful thing. And yes, that contains many known risks, which is precisely why banks are regulated and audited. (I have yet to hear an understandable explanation how a mortgage or business loan works in crypto world - without fractional reserve banking, that is.)
What potentially makes stablecoins scams is if they do not have assets to cover their liabilities. And funny thing is, that would be extremely easy to show to be not the case by being open about the details of the reserves. So easy, in fact, that it is practically impossible to come up with any other reason for not being open about the reserves than them actually being scams.
> You have any evidence for that claim or just assuming?
To be completely honest, and while I only have a degree in Finance and don't work in the industry, it would actually be considered irresponsible of a financial services company to NOT put it into at least a Treasury bond of sorts.
In fact, the process should be almost automatic. Otherwise, I'd argue their system , and its management, as grossly mismanaged and arguably violating their fiduciary obligations to shareholders. As to whether the other party should hold claim over any interest, that's something courts would need to decide in the same way the interest from a security deposit account once went to landlords and I think all the courts changed so that it always belongs to the tenant. Bear in mind that the interest in these cases is typically just dollars and it was more a symbolic victory for tenants.
Although, I've been skeptical of Paypal practices ever since my sister asked me how to pay me using her Bitcoin through Paypal only to find out that the Bitcoin bought on Paypal can only be sold to Paypal. That one just rubbed me the wrong way.
>do you think there is any risk to a user of those third party service providers going under and not returning capital (either due to slashing risk or normal business risk)?
Of course, but it's more like an email provider going under and you losing your inbox than a bad mortgage (which isn't to say that it's exactly the same, because blockchain assets are practically treated as currency, but clearly doesn't map onto the traditional understanding of securitization).
The capital is in theory at risk. The DeFi protocol could get hacked. Coinbase could get hacked. Coinbase could steal your money. Coinbase could go bankrupt.
The fact that their marketing leads reasonable people like you to compare Lend to a savings account with no risk, even in theory, is the choking canary of the mess.
> A: The police are investigating the case so I won’t be able to say much. But if asked, I’m willing to show any bitcoin entrepreneurs how I did it wrong, so they won’t repeat the same mistake.
Is this part of the interview a lie then? I'm seriously asking, I don't know and you seem to have some information as to this aspect. It seems like a silly thing to lie about in an interview though.
there's still people out there like yourself that would allow him to get away with it
I'm not sure what you are talking about, but you seem to be projecting some argument on to me that I haven't made. I was simply calling out a bit of hyperbole.
Imagine if the MtGox private database hadn't been leaked. Imagine if there were no investigative reporters in the wider Bitcoin community! Again, if that were the case, which thankfully it has not been the case...
Exactly, there's quite a bit of scrutiny and investigation at this point. Hardly what I would call the perfect crime.
Also, aren't these bitcoins traceable to wherever they are eventually used? Is it really that good of a crime when a) you'll forever face public scrutiny (to varying degrees) by people with a vested interest in recovering the money, b) may have an investigation as to your conduct, and c) your stolen money is forever traceable?
> On the other hand, any exchange that automatically opts user deposits into staking without notifying them should be criminally liable.
I never realized this could even happen. And this is a HUGE problem for PoS if I am understanding this correctly. Because Exchanges don't even settle the transactions that often on chain, and could totally do this without user knowledge and then say they did with someone else's coins. You can't even prove it.
> Like what, people are just going to give you money without you doing anything?
That’s disingenuous. When you put money into a high yield savings account, or even into a fiat backed 1:1 stablecoin you’re doing something. You’re providing liquidity. A high yield savings account (2-4%) or yield on a fiat backed 1:1 stablecoin (5-8%) is risky in the sense that you need to trust a bank (or exchange), but that’s eased by FDIC (which some exchanges like Gemini have [1]).
> I sincerely hope that I never meet Sam Bankman Fried, because if I did I do not know what I would do but it certainly wouldn't be legal.
You are insinuating physical violence (I will assume) which is never acceptable.
And in your case you made a mistake ie
'I put a chunk of money in there'
and further SBF had no control over this: 'because this all unfolded right after I got fired from my last job, when I really needed my liquid money to pay for things like "my mortgage" and "food".'
The takeaway for others is events happen in life. Could be someone's fault could be nobody's fault.
Having all your eggs (or no eggs) in one basket can and does lead often to disaster.
Sorry for the harsh way of putting this. What you are indicating is that you had no cushion and made the mistake of being lured by a high return and ignored potentially any downsides. (Gemini is not and did not claim to be an FDIC insured bank. Also crypto can and does lose value unlike money in a bank. Even if you had been able to get 7% return if crypto loses value you lose money. Same as or similar to a dividend paying stock).
> You have the stablecoin issuers printing like crazy.
Who is exactly printing tons of these stablecoins, USDP? or any other regulated stablecoin?
> and you have the no chargebacks part of crypto.
And using cryptocurrencies eliminates chargeback fraud which that is abused by the users. The merchants can get their accounts shutdown and their money withheld for months due to the payment processors locking the money and they always side with the bank, which of whom have no context if the chargeback is fraudulent or not.
I don't see how one can use stablecoins for speculation purposes, which one can do with Bitcoin, which that is completely unsuitable for payments.
> Do people who had SafeDollar have control over their own money? Did the people whose money got locked in the DAO because of a software bug have control over their own money?
Nope, because they didn't do their due diligence. Do you deposit your savings to a new bank that's not had a single audit done? Are there any specific banks that you won't do business with? It's the exact same in the crypto sphere.
> Do you in fact do this?
I do indeed. I use it as my daily spending card. Should Contis Financial Services Ltd collapse it'd be a bummer, but I've lost more on a night out by dropping a paper note. I will agree it's not like using a bank card, I should specify more like a pre-paid card.
Whilst you don't get the financial protection that you do with standard institutions it's the price you have to pay to start working towards a different financial future.
> No. The risk profiles on these products match that of Robhinhood, Wealthfront, or a Chase checking account (Genesis' custodial insurance policy beats the FDIC's $200k ceiling). Biggest issue is that you don't own your private keys but that's not unique here.
How are these companies providing 8%+ return on stable coins? They have loans at 4.x%, so they're not taking your coins, lending it, then returning part of the interest to you (like how traditional fiat banks work). With traditional banking the interest rate is closely related to bond rates and the federal reserve, but that's also not the case here.
Theres no clear reason BlockFi can offer such a high rate. Thats a reason for me to be suspicious of the stability and risk profile of these compared to a savings account. If I could truly be confident in the stability of this, I would happily use this as a savings account.
Also, they have insurance, but I'll believe its useful when its tested.
> I ended up resolving it on my own somehow but have been looking for a different, safer service.
Similar situation here. How did you get it resolved? Did you contact attorney? I assume if you keep serious cash (anything above $10k will do), then you find lawyers who take this pro bono. I doubt with all risk involved in cryptocurrency, Coinbase is looking out for bad PR.
> Yeah, they probably should have known better than to use a wallet service on a cobbled-together site like that, but you sound like you're suggesting that's sufficient reason for them to be out their money.
This was an expected outcome given what information was public about Mt. Gox, but I'm not suggesting that the users deserve to be out of their money.
The only thing I like about what happened is that nobody is going to bail out Mt. Gox's owners. And this incident should hopefully make people more cautious about where they store their money.
> Maybe you're comfortable living in that world. I don't think that's remotely grounds on which to suggest that everyone else should be comfortable with the same level of risk.
I'm also not suggesting that everybody else should be comfortable with any particular level of risk. The great thing about Bitcoin is that it's voluntary. Nobody is forcing another human to use it - you only do so if you feel it's the best avenue for you.
While they're not exactly forthcoming with the risks, their marketing pages[1] were also careful to not make any explicit claims of safety (eg. "your principal is protected", or "you won't lose money"). The most that they claimed were "stable" returns. For good measure there's also a disclaimer mentioning the risks.
>There is a range of safeguards in place to help secure your deposits, however holding and depositing stablecoins with Stablegains and third party lending platforms still carries significant risk. Please carefully read our Terms of Use and Risk disclosures in our Learning Center before making a deposit. Any deposit with Stablegains and third party lending platforms is entirely your responsibility. You understand that your principal is at risk.
[1] https://web.archive.org/web/20220108232821/https://www.stabl...
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