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Forward Guidance
Stablecoins Are The New Eurodollars | Daniel Neilson on Death Spirals, Liquidity Runs, and The Fragility of Par
Dec 21, 2023
01:17:09
Snipd AI
Daniel Neilson, economics professor and author, compares stablecoins to Eurodollars and discusses liquidity, par settlement, and the fragility of stablecoins. They explore the role of forward markets in the crypto world, the solvency of Tether and USDC, and the challenges of creating liquid forward markets in the crypto space.
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Quick takeaways
- Stablecoins lack comprehensive forward markets, making them vulnerable to price deviations from par.
- Liquidity support from entities like the Federal Reserve is crucial for maintaining stability in the stablecoin market.
Deep dives
The concept of stable coins and their comparison to Eurodollar deposits
Stable coins, which are crypto tokens designed to trade at a fixed price of one, are compared to Eurodollar deposits in terms of their monetary characteristics. Eurodollars are offshore dollar-denominated deposits and are not regulated by the US Federal Reserve. However, they have a fully developed set of forward markets, allowing for borrowing and lending at different maturities. This helps maintain the stability of Eurodollars and ensures that the value of one dollar offshore is equivalent to one dollar onshore. In contrast, stable coins lack comprehensive forward markets and rely on spot markets to absorb fluctuating demand for their tokens. The absence of forward markets makes stable coins more vulnerable to price deviations from par, causing fluctuations in their value.
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Discover
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