yup. it's the same if you hold USD in a bank account or even a stablecoin. there is a counterparty risk.
Not the same at all, there are drastic differences in risk.
You hold USD in a bank account. The bank goes bankrupt. The government's insurance makes you whole. Admittedly that's not completely bulletproof as the government can also go bankrupt or even attack your account as Cyprus did.
Now you hold USD in your custodial Galoy wallet. The custodians can run away. Your USD is actually some derivative contraption which can depeg (can't it?). The exchange can get bankrupt (many already did!) and then the government will say that only your normal USD positions were insured (of which you have none), your derivative thingy wasn't insured. You can try to hedge by using multiple exchanges, but all of them experience "liquidity pressures" at the same time and so can all go bankrupt together. The bank used by the exchange to keep USD can go bankrupt too and I don't think companies are insured like physical persons.
reply
The government's insurance makes you whole.
"check your financial privileges" as Gladstein would put it. First I guess those insurances are only in the US, for some amount. and to some extend Europe on lower amount.
The type of product develop here are really tailored to developing countries/the global south.
Important to keep in mind also that this insurance is the perfect concept of "Socialism for the rich and capitalism for the poor". banks make profit by lending too much, ie: overextending their fractional reserve power, and when something goes wrong, the FED have to step in and create new money to make the consumers whole. which society pays by inflation.
Now you hold USD in your custodial Galoy wallet.
one comment on this: Galoy is a software company. we help banks/wallets to run software we develop. we are not aiming at being custodian of any funds (similarly FIS/FISV,Jack Henry develop software for fiat banks, they don't operate the bank themselves)
Your USD is actually some derivative contraption which can depeg (can't it?).
How would it depeg? it's really a fully collateralized solution. Maybe the main risk would be an extended negative funding period, as shared in the risks on stablesats.com
The exchange can get bankrupt (many already did!)
yes that is one of the risk. but if you hold USD or stablecoin, you have similar counter risk.
I don't think companies are insured like physical persons.
that's why companies don't keep a lot of USD on bank account. they typically buy treasuries, because the risk of government going down is lower than the risk of a bank going down.
reply