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Basecoin, aka the Basis Protocol

prestonbyrne.com

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Re: Basecoin, aka the Basis Protocol

#71

Post by wyas »

panarky wrote: post #61
wyas wrote: post #59

Earlier quoted context omitted.

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.

Preston has some beliefs that don't make a lot of sense, I agree. But his ability to reason about technical facts is not impeded.

There is no fundamental argument he makes that can be refuted soundly, besides just disagreements in opinion.

Re: Basecoin, aka the Basis Protocol

#72

Post by chrisco255 »

hashsalt wrote: post #53
zodiac wrote: post #28

Earlier quoted context omitted.

He has a weird definition of "break". At no point did the value of collateralized ether backing each DAI go below $1 or even anywhere close to that. There are valid arguments to be made against a DAI-like system like capital inefficiency, the appropriateness of the bounded volatility assumptions, and maybe sell spirals, but Preston Byrne's articles include a lot of invalid arguments.

Thats precisely his point. Contagion causes the break. Analogous to a bank run or the ruinous fall of the Thai baht in 97/98. Nobody has any real info on whether the bank has enough reserves, nor do they care. They just dont want to hold the asset.

In this case, they do. DAI's system is run entirely on the blockchain. It's auditable and decentralized. The biggest risk to DAI is if the value of the collateral crashed below the amount of DAI in circulation. The system has incentives in place to prevent this from happening. I'm not saying it's bullet proof, but I think it's a highly resilient system. I think adding multiple types of collateral should protect against the situation where ETH drops rapidly to near zero.

Re: Basecoin, aka the Basis Protocol

#73

Post by sethbannon »

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…

Pointing this out is a DH1 in Paul Graham's hierarchy of how to disagree -- essentially a form of ad hominem [1]. Even people who get things wrong do occasionally get things very right, so more useful would be to address the points the author of the post is actually making. Are they valid? Why/why not?

1: http://www.paulgraham.com/disagree.html

Re: Basecoin, aka the Basis Protocol

#74

Post by seibelj »

cornholio wrote: post #68
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…

> 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.

Digix is incorporated in Singapore and goes through the same audits as any other gold storage facility, has their gold insured, etc. If you own paper gold that is backed by gold in a similar facility, then this is no different. If you own gold futures then it is ultimately backed by physical gold in facilities (although perhaps warped through various contracts and leveraged 5x).

It just happens that Digix gold is issued as an ERC20 token rather than registered with a physical gold exchange.

Re: Basecoin, aka the Basis Protocol

#75

Post by JumpCrisscross »

darawk wrote: post #50
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 m…

> The interest rate floats, the exchange rate remains constant

Collateral rates have a practical cap, particularly in a time of broader financial crisis. This structure is identical to the "always redeemable" structured products from a few decades ago. There is zero innovation in the financial engineering, just the presentation.

Re: Basecoin, aka the Basis Protocol

#76

Post by JumpCrisscross »

seibelj wrote: post #69
JumpCrisscross wrote: post #67

Earlier quoted context omitted.

> 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 re…

> 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

"I want to sell you this gold token. You can't convert it to gold, because the gold was all stolen."

Re: Basecoin, aka the Basis Protocol

#77

Post by chrisco255 »

thisisit wrote: post #42
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?

I would argue the value of ETH (the asset that backs DAI) crashing from nearly $1400 a couple months ago to a low of almost $350 a few weeks ago is pretty strong. What other asset has these sort of swings in such a low amount of time? The fact that the collateral backing DAI has dipped and yet DAI has remained stable is a testament to the systems underlying it.

What could kill DAI would be ETH crashing to near zero rapidly.

Re: Basecoin, aka the Basis Protocol

#78

Post by scotty79 »

> The money to keep the machine going must come from somewhere, and in this case that somewhere is a new investor willing to subsidize profit-taking by earlier participants in the scheme by committing risk capital of his own.

This exact thing could be said about bitcoin and other cryptos and any other scarcity based investment vessel. It sounds like a horrible flaw but it didn't stop anyone thus far.

The only thing this indicates is that at some point in time baecoin will loose its peg. But it might be decades in the future.

Although I think author is spot on with overall assesment. And failure after loosinh the peg will probably be anything but graceful.

Re: Basecoin, aka the Basis Protocol

#79

Post by seibelj »

JumpCrisscross wrote: post #76
seibelj wrote: post #69

Earlier quoted context omitted.

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 re…

> 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 "I want to sell you this gold token. You can't convert it to gold, because the gold was all stolen."

As with any asset you don't physically own, you are trusting that it exists. Digix is insured, and any token backed by a physical asset you would need to trust the organization that issued it. But this is not rocket science - these types of businesses and the industry surrounding them have existed for a long time. The innovation, if you believe it's innovative, is that the representation of the asset exists as an ERC20 token.

Re: Basecoin, aka the Basis Protocol

#80

Post by ghayes »

sethbannon wrote: post #73
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…

Pointing this out is a DH1 in Paul Graham's hierarchy of how to disagree -- essentially a form of ad hominem [1]. Even people who get things wrong do occasionally get things very right, so more useful would be to address the points the author of the post is actually making. Are they valid? Why/why not? 1: http://www.paulgraham.com/disagree.html

I would also argue the author (in the article) spends more time musing in his own ad hominems rather than addressing his own arguments on their merits.
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