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Basecoin, aka the Basis Protocol

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Re: Basecoin, aka the Basis Protocol

#41

Post by zodiac »

JumpCrisscross wrote: post #35
zodiac wrote: post #30

Earlier quoted context omitted.

> 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. You seem to be making a claim about the space of all possible stablecoin designs, and then then proceeding to demonstrate weaknesses in one particular stablecoin design.

Stable coins are unstable because they're inherently leveraged. This is a problem that traces back to the original "stable coin," bank deposits.

First you must define what you mean by "stabecoin" and "leveraged". I can think of at least two definitions for each one that do not completely overlap.

Re: Basecoin, aka the Basis Protocol

#42

Post by thisisit »

chrisco255 wrote: post #6

MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months. They're in the process of adding more assets to back the currency to improve stability. The supply is capped by a debt ceiling. There are sound principles behind the currency, and it being an ERC20 token, it's got a…

> MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months.

That is an interesting claim. What were these black swan events which DAI passed with flying colors?

Re: Basecoin, aka the Basis Protocol

#43

Post by hcmag »

I've worked with these founders over at Google. They were normal, middle-of-the-road SWEs working on some (fairly boring) DoubleClick teams, one of which eventually shut down. In a matter of a year, with no revenue, code, product, or customers, I can't believe they've raised over $100m.

Are investors just betting on pedigree at this point? In which case, is a Princeton undergrad degree really worth that much?

Moreover, their stint in Google Search lasted maybe 2 months, but is still prominently displayed in their bios. Is that worth another few million?

I can't think of a better example of the SV echo chamber when an investment like this is announced. Even color.com and Juicero had more experienced founders/prototypes.

The future looks bleak when you see fashionable SV outfits leading the blind. It's no wonder why diverse founders with great ideas have trouble getting funded when so much money is going to companies like this.

Re: Basecoin, aka the Basis Protocol

#44

Post by thisisit »

Something is unstable because market wants it to be unstable. There are no mathematically underpinnings which can stop them from a long time. This is a fallacy which cryptocurrency groups need to wake up from. Sure it looks like math can solve this problem and many have over the years relied on solid math only to fail. See:

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

But, what about controlling supply like Basecoin? See SNB peg of 1.2:

https://en.wikipedia.org/wiki/Swiss_franc#2011%E2%80%932014:...

Their peg was broken many times before they removed it completely in 2015.

Re: Basecoin, aka the Basis Protocol

#45

Post by klochner »

chrisco255 wrote: post #6

MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months. They're in the process of adding more assets to back the currency to improve stability. The supply is capped by a debt ceiling. There are sound principles behind the currency, and it being an ERC20 token, it's got a…

From the DAI site:

    > If the value of ether held as collateral is worth less than the amount 
    > of Dai it’s supposed to be backing, then Dai would not be worth one dollar 
    > and the system could collapse.

    > Maker combats this by liquidating CDPs and auctioning off the ether inside before the 
    > value of the ether is less than the amount of Dai it is backing.
Note combats not prevents, it will go to zero with probability 1 [0].

[0] https://en.wikipedia.org/wiki/Gambler%27s_ruin

Re: Basecoin, aka the Basis Protocol

#46

Post by DennisP »

hashsalt wrote: post #17
chrisco255 wrote: post #6

MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months. They're in the process of adding more assets to back the currency to improve stability. The supply is capped by a debt ceiling. There are sound principles behind the currency, and it being an ERC20 token, it's got a…

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.

I know people who do it. They expect a long-term rise in ETH value, but they want to spend some money now without paying capital gains. They use Maker to essentially take a loan out on their ETH collateral. (And yes, they talked with their tax advisors.)

Re: Basecoin, aka the Basis Protocol

#47

Post by darawk »

JumpCrisscross wrote: post #35
zodiac wrote: post #30

Earlier quoted context omitted.

> 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. You seem to be making a claim about the space of all possible stablecoin designs, and then then proceeding to demonstrate weaknesses in one particular stablecoin design.

Stable coins are unstable because they're inherently leveraged. This is a problem that traces back to the original "stable coin," bank deposits.

> Stable coins are unstable because they're inherently leveraged.

No they're not. Asset-backed Stable coins are not leveraged.

Re: Basecoin, aka the Basis Protocol

#48

Post by abhv »

The last bondholders will be left holding worthless obligations when no new buyers are there to create demand.

The institutional investors seem to recognize the ponzi nature of this; first money in, first money out at several X. The veil of "crypto-economics" around this gives them plausible deniability in engaging in this wealth transfer mechanism.

Re: Basecoin, aka the Basis Protocol

#49

Post by [deleted] »

theptip wrote: post #37
drcode wrote: post #25

Earlier quoted context omitted.

Well, maybe something like an ethereum on-chain dollar ETF and a decentralized oracle for determining the exchange rate, which is built out of bonds that allow people to get leverage against the underlying ether currency in exchange for providing collateral for the ETF. The problem with such a construct is that (1) the people providing the collateral will insist on high fees and (2) the amount of collateral provided…

It's not quite the same thing, but Stellar allows the implementation of pegged Assets (e.g. USD), though they are issued by an anchor that you must explicitly trust to redeem those deposits. That could be a bank or other well-capitalized institution however. This is basically the BTC Tether model, except hopefully some anchors will step up that can actually complete an audit without breaking up with their auditors. I…

[deleted]

Re: Basecoin, aka the Basis Protocol

#50

Post by darawk »

JumpCrisscross wrote: post #39

Cryptocurrencies have reached the 1980s, with "stable coins" attempting to achieve the "impossible trinity" [1] of a fixed foreign exchange rate ( i.e. "stable"), free capital movement ( i.e. liquidity) and an independent monetary policy ( i.e. reasonable collateral rates). Prediction: to prevent a breakdown of stability, the marketing point for these schemes, we'll see, for coins without a centralized bottleneck, st…

> The formal model underlying the hypothesis is the uncovered Interest Rate Parity condition which states that in absence of a risk premium, arbitrage will ensure that the depreciation or appreciation of a country's currency vis-à-vis another will be equal to the nominal interest rate differential between them. Since under a peg, i.e. a fixed exchange rate, short of devaluation or abandonment of the fixed rate, the model implies that the two countries' nominal interest rates will be equalized. An example of which was the consequential devaluation of the Peso, that was pegged to the US dollar at 0.08, eventually depreciating by 46%.

Stablecoins don't set their own monetary policy. The interest rate on a stablecoin will be set by the market, not a central bank. The interest rate here is the escape valve that allows the exchange rate to be fixed. The interest rate floats, the exchange rate remains constant.

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