Decentralized trust graph for online value exchange without a blockchain (2017)

Decentralized trust graph for online value exchange without a blockchain (2017)
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> I think the system described is interesting, but for regular human commerce purposes, I think the downsides of it (managing IOUs from many different parties, needing to have a trust-path between users that could steal from you, needing to keep a node online always or trust your money to someone else who does so) make it less useful than cryptocurrencies. Having a common currency between many different parties is much easier to work with than trying to figure out a workable way to value IOUs from many different parties. Needing an established trust-path between users seems like a large obstacle in the internet age where I might suddenly want to transact with anyone on the planet.

You are right, these are disadvantages but other than "trust paths" the complexity can be mitigated with:

1. Market makers who buy IOUs at a discount and swap them for _their_ IOU which can be more trusted. Essentially you want a little bit of centralisation around parties which are known to always make good on their liabilities. These parties could be fully automated (think like Ethereum DAO) and transparent. In some ways these market makers are like banks of today but instead of lending their credit into existence, like banks do, they require people to buy it (usually) at a premium.

2. Insurance or a credit derivatives market so people can hedge against counterparts defaults.

3. If everyone agrees on a common numeraire and wallets are sophisticated to show an aggregate balance in that numeraire taking into account credit risk then that could remove much of the complexity for users. Integrated with market makers, you could "auto swap" IOUs to issuers which you prefer. Wallets can also provide a credit risk break down on all counterparts. Agree this is more complicated than current notions of money.

4. Securitisation markets. Package up IOUs into tranches. Traders can speculate on various levels of credit quality.

5. Sensible reputation management. Non-invasive performance tracking of debtors. Did they meet margin requirements? Did they meet all coupon payments? Etc. Can also take into account degree of co-operation with other users, for example do they accommodate restructuring and help others meet their liabilities?

I don't like crypto because there's essentially zero accountability for issuers and that kind of environment is optimal for scammers. Crypto behaves like synthetic equity/commodity instruments with no accountable issuers. In contrast, with a credit based system, issuers are responsible for their issued liabilities and are expected to make good on them. In crypto, no-one thinks in terms of liabilities and so you get ridiculous projects like "Synthentix" who are collateralising a USD Stablecoins with their own issued tokens. For anyone with a basic understanding of financial risk and accounting, their approach is mad.

A credit based system is fairer because anyone can issue credit and the onus in on issuers to ensure they have the necessary reputation for others to accept their credit. Furthermore, credit-like instruments are natural Stablecoins - providing all agree on a numeraire, the value of credit is a function of credit risk which can be successfully managed in most cases.

HN thread: https://news.ycombinator.com/item?id=23438241

It seems to me that its about realigning trust in this case. And its easier to trust a process that uses mechanics that force behavior to conform to the properties you desire than to trust a process that uses mechanics to enable behavior to conform to the desired properties. You still have to place trust in both implementations nevertheless.

In the case of Ethereum what is the trust? The protocol, the implementation? What is the trust in a bank? The same but with a bunch of human factors around the enabling the bank to function as you desire.

Settle appears to be a step back and try to solve the problem currency has in general by reverting to a barter system. The purpose of a currency however is to use a common valuation system.