For years there has been a controversy about whether or not the stablecoin Tether was truly backed by liquid assets or if the whole thing was just smoke and mirrors. I wouldn’t know. My understanding of stablecoins is that they are more of a tool – a medium of exchange within the crypto markets – than they are an investment.

You would not invest in something where your potential upside is zero and your downside risk is 100%. Best case scenario, you get your dollar back. As we’ve learned this week, worst case scenario is, yes, they can go to zero. I understand that Terra is algorithmic and not the same as Tether – I know the difference, don’t email me. I also don’t think anyone should act as if they know anything for sure about the inner workings of the crypto pipes. It’s not like this stuff has been around a hundred years. It’s all software code that’s been written in the last few years and has never really been tested by a liquidity crunch.

The test is now. If stablecoins turn out to be a ponzi built on top of a bubble, I won’t be shocked. A lot of people will be. I’ll reserve judgment and watch to see what happens. But I can tell you that this is a big moment for that market and everyone is watching.

In the meantime, I’ll stick with short-term Treasurys for my stability. I’m old-fashioned like that. There are enough places to lose money that actually have potential upside, like the stock market. No need to invent new ones.

Last night the Tether stablecoin broke the buck. There is some sort of rescue operation involving third-party swaps underway to bring it back in line. My suggestion is to watch and learn, not participate.


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