Conversation

iang
@iang_fc
The FTX v Binance story might be amazing the crypto community and enraging the no-coiners... But in my humble opinion this is just history - it's happened before. In Free Banking history, this is called Note Wars. In these adventures, competing providers collect up a hunk of...
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iang
@iang_fc
the other guy's notes (in this case, stablecoins) and then trigger a withdrawal of specie (in this case, underlying fiat). This causes a run on the victim and becomes a self-fulfilling prophecy, even though the recipient of this rough love was actually stable.
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iang
@iang_fc
@lawrencehwhite1
&
@GeorgeSelgin
can correct me if I am wrong, but I believe there are 2 solutions to this: 1. regulation, and if you're so dumb as to let that happen, you probably deserve that death of a thousand cuts. OR 2. The option clause. This was brilliantly written...
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iang
@iang_fc
So, in short, bc nobody's going to bother reading the free banking literature (I say this with outrage - I devoured this stuff in the 1990s bc it gave moral and economic foundation to all we were doing) let me give the tl;dr: The option clause is this: in the contract for ...
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iang
@iang_fc
the issuance (you have got a proper contract on chain, right? 😂 duffers...) it has a clause with words to effect: "Issuer can pause redemptions in event of a run, for up to 6 months, and at Issuer's cost of interest over that paused period." So, you don't get your money, yet.
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iang
@iang_fc
BUT YOU GET YOUR MONEY, eventually. In this sense, the coin stops being a redeemable instrument and converts to a short term note. Meanwhile, the underlying "term" assets come good, and the run dissipates.
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iang
@iang_fc
Under such conditions, the run never happens, and competitors pull their horns. (Actually there is one more step in here, I'll leave that to serious, real researchers of finance, and let the amateurs discover it in another disaster booked for around 2024).
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iang
@iang_fc
Postscript - it seems that FTX's and Almeda's balance sheets were intertwined and under water. The option clause thread assumes your balance sheet is good. If your balance sheet(s) aren't good, no amount of reading and understanding will help you, sorry.
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