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Basecoin, aka the Basis Protocol

prestonbyrne.com

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Re: Basecoin, aka the Basis Protocol

#81

Post by celticninja »

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 the links, he really doesn't understand how exchanges work. I am not sure how someone who wants to be an authority on a subject does so little research.

Re: Basecoin, aka the Basis Protocol

#82

Post by wellboy »

drcode wrote: post #27
wellboy wrote: post #14

Why can't you simply make a stable coin where you bet long and short at the same time? Bitcoins goes up 5x, you gain from your long and lose from your short. Then, you find an algorithm that balances it out properly, done.

This scheme will always have one of these problems: (1) people will be required to lock a large amount of collateral to cover their bet that is uneconomical or (2) the peg will break during extreme fluctuations.

Why is that? If BTC goes 20x, then the long position liquidates, but so does the 20x short position.

Re: Basecoin, aka the Basis Protocol

#83

Post by celticninja »

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

Actually the links are useful. The author has a a huge misunderstanding about how exchanges work. I know enough about exchanges that I know he is not only wrong but doesn't understand them at all. Therefore I have to treat his other work with a similar degree of scepticism.

The Murray-Gellman Effect

http://www.patheos.com/blogs/geneveith/2011/08/the-murray-ge...

Re: Basecoin, aka the Basis Protocol

#84

Post by pjbyrne »

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…

It's called an analogy. I analogized the Bitcoin markets to a fractional reserve system, as the dollar value of Bitcoins in the Bitcoin market far exceeds the amount of dollars that have been spent chasing after them. The system is accordingly very vulnerable to liquidity shocks.

Re: liquidity facilities, I know for a fact certain exchanges have liquidity facilities from banks that they draw down in times of increased withdrawal demand. If market conditions deteriorate quickly enough those facilities will be withdrawn, which could result in the exchange getting caught with its pants down with a large, dollar-denominated obligation to its banks and no means to get the dollars to repay it. That is the stuff of which insolvency is made.

Re: Basecoin, aka the Basis Protocol

#85

Post by JumpCrisscross »

seibelj wrote: post #79
JumpCrisscross wrote: post #76

Earlier quoted context omitted.

> 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 ERC…

> these types of businesses and the industry surrounding them have existed for a long time

And they've failed, via common mechanisms, for as long. Hence why issuers of marketable collateral are tightly regulated. This "innovation" updates an administrative aspect that always worked fine while leaving the dicier back-end not only untouched, but less regulated than before. It's analogous to rolling back to an un-patched OS, changing the color scheme and calling it progress.

Re: Basecoin, aka the Basis Protocol

#86

Post by aeries »

hcmag wrote: post #43

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? Moreove…

I can't speak for their coding abilities (which are a poor proxy for company founding abilities anyways), but Nader and Lawrence are both very sharp guys.

Re: Basecoin, aka the Basis Protocol

#87

Post by panarky »

pjbyrne wrote: post #84
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…

It's called an analogy. I analogized the Bitcoin markets to a fractional reserve system, as the dollar value of Bitcoins in the Bitcoin market far exceeds the amount of dollars that have been spent chasing after them. The system is accordingly very vulnerable to liquidity shocks. Re: liquidity facilities, I know for a fact certain exchanges have liquidity facilities from banks that they draw down in times of increase…

Repeating your misunderstandings doesn't make them less wrong.

But thanks for summarizing your thinking for those who didn't click through to the source.

Re: Basecoin, aka the Basis Protocol

#88

Post by justrobert »

wellboy wrote: post #82
drcode wrote: post #27

Earlier quoted context omitted.

This scheme will always have one of these problems: (1) people will be required to lock a large amount of collateral to cover their bet that is uneconomical or (2) the peg will break during extreme fluctuations.

Why is that? If BTC goes 20x, then the long position liquidates, but so does the 20x short position.

If you are interested in this, people tried the long/short strategy in currencies (forex) and called it a grid trade.

The system would be both long and short the same contract and take profit at a given interval on both sides. When they took a profit, they would reopen a trade on the same side.

Ultimately it was just a mean reversion strategy where one would not close out their losses. So the profit was linear while the losses often became geometric until the time the market came back to where they started the grid.

If you just want to buy both sides and never close either trade, there is no profit just a loss of spread/commission on both legs.

Most of the people who did it looked at their account balance rather than NAV, so they were mostly just abusing leverage until a margin call.

Edit: To be fair, some grids were smarter in their allocation and weighted to be positive to the carry, so at least they would collect interest everyday when the contracts swapped.

Re: Basecoin, aka the Basis Protocol

#89

Post by solean »

hcmag wrote: post #43

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? Moreove…

It's pretty elitist to think that you can never accomplish anything worthwhile just because you were only a low level employee at Google, which by the way, is a position most engineers dream of.

Re: Basecoin, aka the Basis Protocol

#90

Post by chrisco255 »

drcode wrote: post #19
zdkl wrote: post #16

Earlier quoted context omitted.

>this is not a sustainable strategy for creating a stable synthetic asset Could you give some pointers for further reading on the subject please?

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…

MakerDAO's system over-collateralizes on DAI. Currently, it takes at least $1.50 of ETH to create $1 of DAI. This is based on the volatility and risk profile of ETH. These parameters are adjustable by MakerDAO token holders. Suppose they added gold to the asset basket where 50% of DAI was backed by gold and 50% was backed by ETH. They could require 125% position on gold and 150% position on ETH. In this case, 50% of the supply of DAI would be subject to the whims of ETH price while 50% would depend on gold. If gold or ETH were both to drop to near zero at nearly the same time so rapidly that the CDPs could not be liquidated in time, then the system would be at risk. Seeing as how Gold and ETH are not correlated, this is an unlikely event. Adding 8 more uncorrelated assets to the protocol would only further improve the stability of the system.
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