Basecoin, aka the Basis Protocol

Stablecoins are fundamentally broken and unsound. Ignoring the tech-stack that achieves price stability, and looking at them purely economically, the math simply breaks down.

This is a great writeup on Basecoin, but there's another player in town called Carbon (https://www.carbon.money/). Directly from their whitepaper:

"Carbon utilizes a decentralized schelling point scheme to achieve distributed con- sensus on Carbon’s exchange rate. Every 24 hours, also known as the rebasement period, a schelling point scheme is initiated where nodes submit bids for what they believe the true exchange rate of Carbon to be. Each bid is weighted by a collateral, denominated in Carbon. At the end of the 24 hours, bids are to- taled and the protocol takes a weighted average of the bids. Anyone who bids outside the 25th and 75th percentiles will have their balances slashed. Anyone within the 25th and 75th percentiles receive a normal distribution of the loser’s balances, with the highest reward distribution at 50% and normally diminishing on the right and left respectively"

This has security issues. Unless they own all the participating nodes, then -- as written -- this protocol has several ways that it can be gamed with enough Byzantine players so that the Byzantine parties are w.h.p. in between the 25-75 range and correct nodes are at the edges, which then get their funds slashed. They use several (also broken) mechanisms for contraction and expansion depending on the agreed-upon exchange rate, but supposing they are not broken, the true value of the coin can be gamed which then invalidates these mechanisms. We are truly so deep in mania.

EDIT: Also to add a bit more to Carbon: Hashgraph is also simply a BFT protocol that requires a permissioned setup. If we are going to deploy a smart-contract-enabled stable cryptocurrency on a permissioned network, then it is unclear why this complicated and unproven stack is even needed.

DAI coin is just diversifying risk by using multiple underlying assets- So instead of a 10% chance of the value dropping 90% due to a failure of an asset guarantor, it will just have a 90% chance of dropping 10% in value. The MakerDAO organization can likely cover this 10% loss in asset value by using their enormous capital, but this is not a sustainable strategy for creating a stable synthetic asset.

I think sustainable synthetic blockchain assets are possible, but they will always have complicated risk/reward profiles that won't fully mirror the underlying asset they are designed to model: The dream of a truly "synthetic dollar" will always remain a dream.

EDIT: I should clarify that I think DAI coin may still be a useful construct for some situations, but it's going to be an asset with very different properties compared to any target real-world asset.

This is good but the author makes a common mistake referencing fractional reserve banking. Fractional reserve banking really isn't a thing. Most central banks in the world don't have reserve requirements. Even in the USA, only a small subset of debt requires reserves. And even then the reserves can be met in 30 days.

The issue is that it is uneconomical. Collateral is set at 4-5x. The market for people who want to make that trade is limited.

There's not really much reading on this- You simply can't take 10 assets that are worth less than $1 individually (because of guarantor risk) and mix them together to create an asset that's pegged at exactly $1- This is not a problem that can be solved by "diversification".

For other history on synthetic assets, read Preston's posts and also Vitalik's posts such as https://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal...