... now I have to wonder how long until Tether or USDC go to a bitcoin-backed model? ... hmmm
Without digging too deep, it sounds like a recipe for disaster.
The convexity of the curve goes the wrong way.
What if the backing asset (bitcoin), goes down too much wrt the tracked asset (USD)?
Not even 0% rehypothecation can make sure the whole thing doesn't collapse.
Like not even holding 200% btc reserves (as if they ever would).
"Durr durr it won't happen because bitcoin intrinsically superior, durr durr"
Irrational/solvent, markets are like this.
Algorithms are supposedly rational, but catastrophic events do happen.
Algorithmic bug or execution glitch, all it takes is once.
USDT/USDC should be backed by plain old greenbacks.
One to one.
(#SOMA warning)