Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Algorithmic stablecoins are provably impossible without continuous funding

fragileequilibrium.substack.com

Post reply on HN
Print view View original

131–140 of 264 posts

Re: Algorithmic stablecoins are provably impossible without continuous funding

#131

Post by pas »

throwawaymaths wrote: post #20
AndrewStephens wrote: post #10

Earlier quoted context omitted.

Well duh, that is the whole point of the fed - tweaking the dials to smooth out the peaks and troughs. Sometimes that doesn’t work, or works only after the fact, but the last 70 years or so has been fairly smooth sailing compared to what came before.

The worst is when it works to smoothen out the peaks but the cost is silently screwing over poor people. So everyone at the top can pat themselves on the back, and people in the middle start blaming capitalism.

how does that screw over poor people?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#132

Post by sifar »

imtringued wrote: post #47
sifar wrote: post #17

Earlier quoted context omitted.

cue autonomous vehicles. Seriously though this is a very wrong analogy. The economy is more like an ecosystem where individuals interact with themselves & the environment. It doesn't need continuous manipulation. In fact it tends to distort than aid.

The economy is not like an ecosystem since there is no reciprocation. Money flows in one direction only, toward the top. I find it particularly frustrating that people don't see the economic distortion caused by monopolies in the private economy, they think it must be the government's doing when it tries to undo some of the harm caused by them.

I find it useful thinking in ecosystem terms as a model. And ultimately, the economy is situated in a real ecosystem and not an abstract manifestation.

>> The economy is not like an ecosystem since there is no reciprocation If mutual beneficial trade is not reciprocation, then I don't know what is. Reciprocity is more a societal thing than an economic one. I would say historically there have always been reciprocal societies. Smaller ones tend to be more reciprocal than larger ones since their survival depends on it.

>> Money flows in one direction only, toward the top This is by design i.e intervention. It need not be so. And there is nothing preventing a species from colonizing an habitat till it exhausts the resources and it's own ultimate demise.

Monopolies, by and large are formed (and broken) by government aid/intervention. Post the industrial revolution, the government has become involved in more and more areas of the economy, so much so that now it has become the chief driver, to stimulate growth, reduce inflation, boost employment/industries. Given the complexity of interactions in the real world, I don't understand how someone can believe they can understand everything and control it.

Regarding your other comment, I agree, the notion of exponential growth is ridiculous and runs into real world limits.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#133

Post by kuhewa »

Avicebron wrote: post #130
kuhewa wrote: post #127

Earlier quoted context omitted.

It's useful from the standpoint it was explained in Sapiens (like how the fiction of the LLC allowed certain innovations) but not so much in this context. You can believe in the corporation or not, the important thing is that you won't go personally bankrupt if your company does, if the relevant 'belief system' aka the US judicial system evaporates, we have bigger problems to worry about than well, anything else in t…

I agree with GP to some extant, but yeah..the old "nothing matters in this semi infinite void we call reality" isn't usually much of a starter.

It's worth talking about in so far as trust is important for some concept to work. Like.. how you will help your friend move apartments because you know he will help you in a year or so. Or whether a successful (thus far) crypto coin could go to zero.

But the whole point of a corporation is it is a legal entity, you don't need to trust anything for it to work other than other than.. idk the fabric of our society.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#134

Post by gitfan86 »

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…

I would happily use Tether, Shib, beanie babies, USD as medium of exchange if I trusted that the exchange took place in a timeline I wanted. I'm not comfortable holding tether for more than a few minutes, and I'm not comfortable holding USD for more than a few years.

The problem is getting stuck holding the asset for a long period of time. USD will lose 80% of it's value over the next 50 years. Tether likely will lose 100% in that time frame.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#135

Post by jqpabc123 »

tlb wrote: post #118
tim333 wrote: post #94

Earlier quoted context omitted.

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…

The collective belief that you own your home is a crucial part of its value. If you come home and find a bunch of people partying in your kitchen, you can tell them to leave, or call the police and they'll drag them out. That's all due to the collective belief that you own your house. Without that collective belief, owning anything is a huge effort to defend it against whoever else it might appeal to.

This "collective belief" is somewhat more than mere "belief".

It has been translated into laws and social contracts backed by established enforcement that is sufficiently effective and has been demonstrated to the satisfaction and judgment of most people.

It's true that in the event of nuclear war, this could all evaporate --- but this probabilty is low enough for most people to reasonably ignore. Labeling this a "belief" is thus somewhat disingenous in the fact that it is reason rooted in logic and judgment and probability.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#136

Post by rglullis »

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.

https://trustlines.network

Re: Algorithmic stablecoins are provably impossible without continuous funding

#137

Post by charcircuit »

notahacker wrote: post #102
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 fle…

>Most casinos operate on this basis without requiring constant injections of further capital.

They mitigate the risk by settings caps to maximum bets. You can't just bet a bit more than half of a casino's assets in double or nothing with them. They don't want to be taking a 50% chance of losing everything. Even if there was a 2% edge that's still a 48% chance of it happening. They would rather work with smaller amounts where the chance of someone winning a ton of times in a row to eventually win everything is practically 0%.

>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.

They may be rewarded but they aren't being guaranteed that the value of what they hold will always go up.

Again a Ponzi scheme is a very specific thing. People make an investement and returns on that investment come from new investors. In this kind of stablecoin system there is no part that where that specific thing happens.

>were supposed to enjoy average negative returns for the sheer joy of gambling like people on craps tables

This is usually how algostables work. People bet on growth of the project and once growth has peaked negative returns will be coming. By trying to avoid this period of negative returns a depeg happens.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#138

Post by Siira »

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…

This is just reverse foolery. A gun is valuable whether people believe in it or not. Same with a hamburger.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#139

Post by rsynnott »

axus wrote: post #119

Is this true of any currency pegged to an exchange rate, such as yuan, ruble, and riyal?

I mean, it’s true that the peg may in some instances be difficult (or undesirable) to maintain, and may be dropped (the yuan isn’t strictly pegged to the dollar anymore, say). But at that point the currency will generally still be a useful currency. The only value of a stablecoin is that it’s pegged to something; once the peg is lost it becomes largely useless.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#140

Post by mrpopo »

jqpabc123 wrote: post #135
tlb wrote: post #118

Earlier quoted context omitted.

The collective belief that you own your home is a crucial part of its value. If you come home and find a bunch of people partying in your kitchen, you can tell them to leave, or call the police and they'll drag them out. That's all due to the collective belief that you own your house. Without that collective belief, owning anything is a huge effort to defend it against whoever else it might appeal to.

This "collective belief" is somewhat more than mere "belief". It has been translated into laws and social contracts backed by established enforcement that is sufficiently effective and has been demonstrated to the satisfaction and judgment of most people. It's true that in the event of nuclear war, this could all evaporate --- but this probabilty is low enough for most people to reasonably ignore. Labeling this a "be…

> It has been translated into laws and social contracts backed by established enforcement

So, the "long dick" of the US government that grand-parent was talking about. Society creates value.

Post reply on HN