The entrepreneur gave three different explanations in a Twitter thread.
He believes this description is necessary for those in the policy space.
FTX founder Samuel Bankman-Fried, also known by his initials SBF, tweeted earlier today about how stablecoins could mean different things. In the Twitter thread, he went on to describe three different definitions with examples.
“One thing it can mean is: stablecoin backed 1:1 by USD in a US bank account,” said the young crypto billionaire. “That’s what current drafts of US regulations are looking to license, as a first step.”
2) One thing it can mean is “stablecoin backed 1:1 by USD in a US bank account”.
That’s what current drafts of US regulations are looking to license, as a first step.
— SBF (@SBF_FTX) May 12, 2022
The entrepreneur continued to add, “Another is stablecoin backed >= 1:1 by liquid debt assets, treasuries, and USD.” He explained that this meant non-zero price risk, but that they generally stayed very close to $1 because they could be redeemed. SBF then cited the example of USDTs and explained how it stayed within a few % of $1 during this present crash.
The third definition offered by the young entrepreneur was: stablecoin backed >= 1:1 by a very volatile asset. These, he said, are algorithmic stablecoins. SBF uses UST as an example for this particular category.
Really we shouldn’t use the same word for all of these things. What we call ‘algorithmic stablecoins’ aren’t really stable in the same way that fiat backed stablecoins are. They’re more like structured products, and they need upside if they want to justify the risk.
SBF believes that even though people in the crypto space are already aware of these differences, this might not be the case in the policy space. He added that it was necessary to be explicit about it.
The responses to SBF’s thread were mixed. Some users agreed with him saying, “I was thinking yesterday exactly the same thing” and “So very true.” Others’ remarks weren’t this supportive with some even calling the post nonsensical.
SBF founded FTX three years ago as a derivatives exchange aimed at serious traders. Today, the company boasts a $32 billion valuation. Interestingly, SBF is widely seen as a trustworthy figure in the crypto space and someone that policymakers are more willing to engage with.