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Basecoin, aka the Basis Protocol

prestonbyrne.com

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Re: Basecoin, aka the Basis Protocol

#61

Post by panarky »

wyas wrote: post #59
panarky wrote: post #57

Before you read this 2000-word treatise, know that the author, Preston Byrne, has a history of misunderstanding fundamental concepts about money and markets. Example 1: He believes Bitcoin is a fractional reserve system. https://news.ycombinator.com/item?id=15792314 Example 2: He doesn't understand that market participants bring liquidity to exchanges, so he thinks exchanges themselves go bankrupt if market prices de…

Attacks on the author aren't the best thing in general ( https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%2... )

I agree that ad hominem attacks are generally counterproductive when your goal is to evaluate an argument.

However, when deciding whether to invest hours reading and discussing his latest arguments, the author's credibility is a factor.

Re: Basecoin, aka the Basis Protocol

#62

Post by thinkloop »

wyas wrote: post #59
panarky wrote: post #57

Before you read this 2000-word treatise, know that the author, Preston Byrne, has a history of misunderstanding fundamental concepts about money and markets. Example 1: He believes Bitcoin is a fractional reserve system. https://news.ycombinator.com/item?id=15792314 Example 2: He doesn't understand that market participants bring liquidity to exchanges, so he thinks exchanges themselves go bankrupt if market prices de…

Attacks on the author aren't the best thing in general ( https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%2... )

Generally agree, but those are pretty damning comments showing a weak understanding of money mechanics, and this project is fundamentally about money mechanics.

The second comment is especially relevant as it deals with pricing, which is the thing this project is about: https://news.ycombinator.com/item?id=15792065

Author doesn't understand that prices are only determined by what people are willing to trade for, rather than them being some external thing that exchanges have to guarantee.

Re: Basecoin, aka the Basis Protocol

#63

Post by seibelj »

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 crypto hate on HN is enormous, and someone who evaluates MakerDAO for 15 minutes will speak authoritatively over its inevitable failure.

The core thing to realize about Maker is that all Maker does is loan Dai against an asset! It's collateralized. Ethereum may be risky to use as collateral, but something like Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing Dai against a real asset (gold). If you think Maker will fail, you are arguing that the value of the asset backing Maker will fall.

Re: Basecoin, aka the Basis Protocol

#64

Post by chrisco255 »

drcode wrote: post #25
AlexCoventry wrote: post #21

Earlier quoted context omitted.

> sustainable synthetic blockchain assets are possible Want do you have in mind?

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…

This is more or less how DAI works. And in the case of a broken peg, there's a global settlement option that can liquidate all the collateral. https://developer.makerdao.com/dai/1/stability

Re: Basecoin, aka the Basis Protocol

#65

Post by modeless »

panarky wrote: post #57

Before you read this 2000-word treatise, know that the author, Preston Byrne, has a history of misunderstanding fundamental concepts about money and markets. Example 1: He believes Bitcoin is a fractional reserve system. https://news.ycombinator.com/item?id=15792314 Example 2: He doesn't understand that market participants bring liquidity to exchanges, so he thinks exchanges themselves go bankrupt if market prices de…

Thanks for pointing this out. Example 2 clearly demonstrates that he doesn't understand how a currency exchange works, which is strange for someone of his professed experience.

This article is also rather obnoxiously written and there's only one substantive point in the whole thing. However, I think he probably isn't wrong in this case. "BASE bonds" are more like futures or options than bonds, and when the price falls the incentive of being paid in the falling currency probably isn't enough to attract the investment needed to maintain the peg.

Re: Basecoin, aka the Basis Protocol

#66

Post by mattbeckman »

monochromatic wrote: post #33
mattbeckman wrote: post #26

This guy doesn't give Bitshares enough credit. His review from 2014 may hold water in a low liquid scenario, but even for a mildly strong market, it's always been a better alternative than, say, the magically backed world of Tether.

Damning with faint praise.

Not really.

He basically says the Bitshares approach is unsound because it requires market forces to be > 0. I agree that you can't have a stable pegged asset when nobody wants to participate in that market. However, if nobody wants to participate, then why do we care about stable pegged assets in the first place.

Re: Basecoin, aka the Basis Protocol

#67

Post by JumpCrisscross »

seibelj wrote: post #63
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 crypto hate on HN is enormous, and someone who evaluates MakerDAO for 15 minutes will speak authoritatively over its inevitable failure. The core thing to realize about Maker is that all Maker does is loan Dai against an asset ! It's collateralized. Ethereum may be risky to use as collateral, but something like Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing D…

> Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing Dai against a real asset (gold)

Marketable collateral is an old idea, and suffers certain intrinsic difficulties. One is counterparty risk. Here we have at least three trust points: the place(s) the gold is physically held, Maker and the mechanism by which one holds Digix.

The classic case: Maker lies about the amount of gold in the vault (or steals the gold). Less classic case: the person holding the gold does the same. More realistic case: someone in this chain runs into financial difficulties, or messes up their AML or sanctions compliance program, and has their assets frozen and/or seized by some authority somewhere in the world.

Re: Basecoin, aka the Basis Protocol

#68

Post by cornholio »

seibelj wrote: post #63
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 crypto hate on HN is enormous, and someone who evaluates MakerDAO for 15 minutes will speak authoritatively over its inevitable failure. The core thing to realize about Maker is that all Maker does is loan Dai against an asset ! It's collateralized. Ethereum may be risky to use as collateral, but something like Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing D…

> If you think Maker will fail, you are arguing that the value of the asset backing Maker will fall.

Or the entity having the key to the gold vaults decides to buy themselves a nice tropical island. The real world, it seems, does not expose a blockchain API.

Re: Basecoin, aka the Basis Protocol

#69

Post by seibelj »

JumpCrisscross wrote: post #67
seibelj wrote: post #63

Earlier quoted context omitted.

The crypto hate on HN is enormous, and someone who evaluates MakerDAO for 15 minutes will speak authoritatively over its inevitable failure. The core thing to realize about Maker is that all Maker does is loan Dai against an asset ! It's collateralized. Ethereum may be risky to use as collateral, but something like Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing D…

> Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing Dai against a real asset (gold) Marketable collateral is an old idea, and suffers certain intrinsic difficulties. One is counterparty risk. Here we have at least three trust points: the place(s) the gold is physically held, Maker and the mechanism by which one holds Digix. The classic case: Maker lies about the amo…

Once you have possession of a gold token, no one can stop you from trading it, because of the blockchain. Converting your gold token into gold and having it shipped to you may be problematic, but once you have the gold token, it's transferrable.

Maker is decentralized, the problem there would be a bug in the smart contract.

And Digix being a failure / scam, that is indeed a failure point.

But what MakerDAO and Dai represents is not some "magic blockchain thinking", it is based on rational economic incentives.

Re: Basecoin, aka the Basis Protocol

#70

Post by chrisco255 »

ajiang wrote: post #10
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…

I think the defense of "nothing has happened yet" is a tough one to back, in particular given that during the build up to the last recession, 1) collateralized debt was claimed by wall street to be "as good as cash" and 2) the housing market would "always go up". It works until it doesn't.

DAI is set up so that it's not dependent on ETH always going up. People create DAI by locking up ETH (or in the future, other assets) as collateral. Currently for ETH, you have to lock up 150% of the value that you take out in DAI (but you can collateralize higher than that if you like). If the price of ETH falls below a certain value, then a position can be liquidated automatically by the system, to cover the position.

DAI has a goal of adding additional forms of collateral in the future. One could see a coin like DAI being backed by a mix of Gold, real estate, commodities, or securities to achieve greater stability.

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