I'm not necessarily saying that there is something unsound going on, just that lack of auditor engagement is likely indicative there is a non-trivial amount of process-risk there that no one except them is privy to, and incentive-wise, they aren't going to just come out and say "it's all a house of cards, guys!"

>and that the company wouldn't become insolvent because the company would incur huge losses if that happened

Something there is parsing off to me, but I'm not going to try to pretend I have a mastery of insolvency vs. losses, but generally speaking, insolvency doesn't cause losses. Insolvency happens as the result of losses, which may be caused by any number of factors. The state of becoming insolvent itself is actually a bit of an information propagation problem, because once that state is reached, in many jurisdictions, all transactions must cease, but no one has a master "stop all business processes this instant" button.

>However, I'm still of the (apparently wrong?) opinion that Gemini/Circle/Binance/Paxos at least, are staking their real businesses, with things like executive pay and employee payroll and all that, on these products. "We lost the money and our stablecoin is now worthless" should sink any of these companies.

You are correct. They are. What you're missing there, though, is that the company != the people. Incentive problem again. If things do go belly up, the only things "lost" are company assets (equipment, patents, licensing, the brand, etc...) and "potential income" (exec pay) in the form of Stocks and equity that would need to be sold off first to realize that income, which they probably have been doing all along. No skin off their nose if they have to restart a new chain. In fact, the old one going under would make doing so easier due to the chunk of assets about to be sold off on the cheap.

The danger, at least from my understanding, is exactly tied to the holding of assets to back the stablecoin. Say everything goes up in smoke. The company gets liquidated through bankruptcy or restructured, but all of that paper they hold is not cash value. It has to be sold at market rate, and large volume paper moving can move prices in unintuitive ways. Under bankruptcy, particularly the liquidation form, most of that will sell for way below value since there will be quite literally no other choice than to sell. In fact, these stablecoins, if their USD peg is ever called to be accounted for as collateral, being in the form of held paper they state they can liquidate to cover their cash liabilities: may at any time become insolvent if something big happens in a particular sector of the market to which they have exaggerated exposure. Then again, that could pass with nary a whimper because nothing happened that required them to actually pay out that USD denomination. The risk is still there though. I've developed a waryness of anything that passes itself off as stable, but is, in fact, subject to normal market volatility. Given that it's taken me years of intentional effort just to kinda grok things to the point I semi-reliably seem to be able to explain things without a professional coming out of the wings and enlightening me to my dead wrongness 100% of the time, and the fact most everyone else doesn't bash their head bloody doing so, I tend to personally look at these as extremely likely sources of unexpected second and higher order effects.

It's a threat to market stability, because that much paper getting dumped on the market at once creates a supply glut. These stablecoins are operating like banks in a sense, without any of the controls. We now have two kinds of bank runs to worry about, one isn't audited at all, and if something were to happen, would potentially leave a rather large blast crater.

So I won't go so far as to say your opinion or outlook on these companies is wrong per se. I will say there is enough lack of information on my part I wouldn't put my money into it, and it makes me nervous what'll happen if the seeming risk check being written ever comes due. This may turn into another mess of a recession or other market shaking calamity. Like, just me thinking about it right now took me through every bit of research I've done over the last 5 years in spare time, and I'm still not even confident I've got a solid grasp of the second and higher order consequences.

What I do know, is that someone betting their business on something is never in isolation a good enough reason to put your hard earned capital into it; and I implore you to do your own research and really try to wrestle with it. It's hard, but that's capitalism. We're all capital allocators, and if we don't make the decision of how we want our hard earned capital allocated, then we're never really factoring into the invisible hand, someone else is.