The downvotes are because "worthless" is hyperbolic and unhelpful. Clearly, the coins have value because someone out there feels like paying money for them.
More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize.
Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins.
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The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple:
Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt.
A stable-coin, is simply the senior-debt on some other cryptocoin.
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Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000.
But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place).
When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000.
When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000.
This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior.
Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius.
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You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money.
Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it.
Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however.
It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.
More importantly: we _HAVE_ to understand the market dynamics here. What's going on is very human and very important to realize.
Matt Levine from Bloomberg has a very simple explanation: the cryptocoin world has discovered "senior debt vs junior debt", and are using this concept to create stablecoins.
------------------
The issue is, the rest of the world _REMEMBERS_ 2008, and what happened the last time we relied upon the senior/junior debt split. The concept is simple:
Junior debt is high-risk. Senior debt is low-risk. Through the use of structuring your economy around this concept, your junior debt "supports" senior debt.
A stable-coin, is simply the senior-debt on some other cryptocoin.
-------
Lets take BTC for example. Lets say I want to "create" a stablecoin out of BTC, despite its widely varying valuation. Lets say I set up a senior set of notes: it stays at $1 as long as BTC stays above $10,000.
But what about all the "risky part" ? Well, someone out there in the world wants to bet it all on the risky part. When BTC rises from $10,000 to $50,000, they want to make $40,000 with $0 investment. Because the "senior" guy already took the risks for $10,000 and below, I can now offer the "rest of the gains" to the junior guy, who can play with all the values of BTC above $10,000 (except, without having to pay any money in the first place).
When BTC goes up to $20,000, the junior guy spent $0 and made $10,000. Senior guy still has $10,000.
When BTC goes up to $50,000, junior guy now has $40,000 and senior guy has $10,000.
This sounds hypothetical, but its in fact very similar to how the stablecoin TITAN / IRON was structured, with Titan as the "senior" stablecoin and Iron as the junior.
Now just wrap it all up in a smart contract, maybe tie the concept to Ethereum (or whatever other cryptocoin suits your fancy), and you too can reinvent senior/junior debt structures and pretend you're a genius.
------
You see? Senior is "just" the stablecoin guy. Junior is the WSB idiot who might lose all of his money.
Or in other terms: your CDO of CDOs is truly and 100% secure. You may have a pile of shit, but you can extract stable values out of it.
Or at least, so went the theory of 2008 housing crisis, CDOs, and CDSes and all that. We know where that went however.
It hasn't even been 13 years and everyone's forgotten about the underlying assumptions that broke the market in the 00s.