Algorithmic stablecoins are provably impossible without continuous funding • Hacker News Board

Re: Algorithmic stablecoins are provably impossible without continuous funding

#101

Post by drdeca » Mon, May 30, 2022, 9:30 AM UTC

Ntrails wrote: post #87

pid-1 wrote: post #46

Earlier quoted context omitted.

> The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset Most non currency assets are cash flow generating financial instruments. If analysts don't believe a company is worth a dime, it can show them wrong by being profitable and paying dividends. Edit: I think my point is - even…

I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction that we all believe in. As are nations, laws, etc etc. The idea that "tesla" is an entity one can interact with. That this "tesla" thing has value in and of itself. They're derived from beliefs in a system. Which could evapourate and render the idea of value meaningless. I don't think this is…

I suspect that a company is still a natural abstraction in the sense described by John Wentworth (wrt “information at a distance” and such).

Re: Algorithmic stablecoins are provably impossible without continuous funding

#102

Post by notahacker » Mon, May 30, 2022, 9:35 AM UTC

charcircuit wrote: post #81

>In the event that the funding comes from new entrants into the Stablecoin/Insurer ecosystem, the system is definitionally a Ponzi Scheme and is unstable. No, that is not the definition of a Ponzi scheme. A Ponzi needs funding from outside money to continue to operate, but not everything that needs outside funding to operate is a Ponzi scheme. As an example let's create a gambling system. Any deposits made into the h…

The gambling system has a house edge. It's a system which exists for the house to take money (in aggregate) off gamblers. The profits are real, and nobody pretends there aren't losers. Most casinos operate on this basis without requiring constant injections of further capital.

The stablecoin on the other hand claims that stakers are being rewarded for risking their capital without holders of the stable coin being fleeced at their expense. The only way to do this is by the number of people coming into the system expanding, and unlike the gambling system, the proposition of the stablecoin is these new participants don't lose money either. It has the classic Ponzi dynamic of being a zero sum game masquerading as a positive sum game through growth.

I guess a stablecoin could theoretically operate on the basis that "stakers" were supposed to enjoy average negative returns for the sheer joy of gambling like people on craps tables. That would be much more like your proposal, and would be far too truthful in its white paper to be called a Ponzi, though it might have trouble attracting gamblers compared with the glitz and glamour of the casino and all the crypto ways to gamble money that don't openly admit paying negative returns.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#103

Post by Hendrikto » Mon, May 30, 2022, 9:43 AM UTC

tablespoon wrote: post #11

mcs5280 wrote: post #7

Not a crypto fan but I'm beginning to see that our entire economy is proving impossible without continuous manipulation by the fed

> Not a crypto fan but I'm beginning to see that our entire economy is proving impossible without continuous manipulation by the fed Just like driving a car proves impossible without continuous manipulation by its driver.

The driver is the one controlling the car. Without one, the car can only roll downhill.

Is that really a position you want a non-democratically elected agency to have? Society at the behest of Jerome Powell?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#104

Post by Hendrikto » Mon, May 30, 2022, 9:46 AM UTC

overtonwhy wrote: post #72

mcs5280 wrote: post #7

Not a crypto fan but I'm beginning to see that our entire economy is proving impossible without continuous manipulation by the fed

It is literally their job: The mission of the Federal Reserve System is to foster the stability, integrity, and efficiency of the nation's monetary, financial, and payment systems so as to promote optimal macroeconomic performance.

That‘s a romantic idea, but not what they have done for decades though. The Fed is way too busy propping up the system to prevent collapse.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#105

Post by baobabKoodaa » Mon, May 30, 2022, 9:48 AM UTC

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

If you have a backed stablecoin (as opposed to algorithmic stablecoin) that is pegged to the USD without any funny business, then the price of that coin can always be restored to $1. No matter how badly people "lose faith" in the coin.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#106

Post by Kinrany » Mon, May 30, 2022, 9:49 AM UTC

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

We need a crypto that builds the network on trust between real people. If A and B know each other and B and C know each other, then A and C can trade or give credit to each other by going through B. No need for a global consensus.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#107

Post by simonh » Mon, May 30, 2022, 9:52 AM UTC

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

The value of a thing is in two parts, it's use value to it's possessor and it's exchange value with others.

Examples have already been posted here. My house has a use value to me because I need somewhere to live. If I lived on a small island off Antarctica it would still have great value to me but perhaps no value to anyone else.

Money is a financial instrument that only has exchange value, unless you count say the use of bank notes for lighting fires or papering walls. It's value as money is entirely by consensus.

Notably not even the government that issues it actually sets it's value. Ask the governments of Venezuela or Zimbabew about that. Yes of course they can do things that affect it's value, like printing too much of it or defaulting on bonds, or consistently paying on their bonds, but the actual value is set by people. When someone sells a product or service they ask for a price, and if someone pays it then that establishes a value for the product relative to other products, and a value for the currency exchanged. What happened in Zimbabwe is people asked for an awful lot of ZB$ for things compared to how many US$ they asked for. Thats what set the value of the ZB$ (and to some extent the US$ of course).

Governments sometimes do try to manipulate currency values through currency controls, but what that actually does is constrain currency flows. If a currency control set a high price for a currency, it will just not be traded as much, only people willing to pay the premium will do so. Those not willing to pay it simply won't and those transactions and that economic activity will be constrained (or the exchange will happen on the black market).

There can be coercive pressure of course, such as Russia requiring companies to hold Rubles, but you could hold a gun to my head and force me to hand over my house at a discount or for nothing. That says more about the use value of loaded guns than about the exchange value of my house. Governments have the ability to take value rather than exchanging it, but even that has it's limits.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#108

Post by afiori » Mon, May 30, 2022, 9:59 AM UTC

tim333 wrote: post #94

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

My house is valuable to me even if there isn't a collective belief in it. Most financial assets are backed to some extent by real assets. I'm happy enough to put value in USD or imaginary-coin if I can swap my holdings in them for a nice house/car/jet. You don't really need "economic, military and even cultural might" - just for the currency to be accepted somewhere where you can buy real assets and for the supply to…

> if I can swap my holdings in them

The reason people are willing to give away their house/car/jet in exchange for crumpled is the existence of the market protected by that "economic, military and even cultural might".

Trust here is not in that the some big guns are protecting your cash, it is rather about you trusting that the next day/month/decade people will want that cash about the same as today.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#109

Post by afiori » Mon, May 30, 2022, 10:02 AM UTC

neilwilson wrote: post #96

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

"So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might." It's the ability to demand and enforce tax payments in that denomination - with the consequence of not doing that being you will lose property and liberty. Obtaining the denomination to settle the tax then becomes the discounted opti…

I would say that what makes any currency valuable is the market using that currency; the necessity of paying taxes is both a jump-start and a stabilizer of that market preventing fragmentation of the currency.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#110

Post by dgb23 » Mon, May 30, 2022, 10:03 AM UTC

Kinrany wrote: post #106

jmyeet wrote: post #37

This doesn't go far enough. The only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. Put another way: there is an inescapable component of trust in every asset. Crypto in any form doesn't solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you're adding trust. Even on the blockchai…

We need a crypto that builds the network on trust between real people. If A and B know each other and B and C know each other, then A and C can trade or give credit to each other by going through B. No need for a global consensus.

Vouching systems are generally very solid if you also have some way to expell parts of your network after the fact. You need some way to slow down and curate your network or all the benefits are lost.

The benefit of these: it mimics in person interactions and describes a simple process.

But The trade off is that they only work if they grow slowly and organically, which seems to be contrary to what the crypto space is trying to do.