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Algorithmic stablecoins are provably impossible without continuous funding

fragileequilibrium.substack.com

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Re: Algorithmic stablecoins are provably impossible without continuous funding

#141

Post by tlb »

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…

The claim that major elements of the social contract can be derived through logic and reason is controversial.

If you find yourself believing that our own social contract is the only logical & rational one, or at least the likely result of social progress, you might try reading Graeber and Wengrow's The Dawn of Everything. It covers a very wide range of alternatives that all made sense to the people in those societies at the time.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#142

Post by hapiri »

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…

"beliefs" here is a sarcastic term but of course they refers to the written legal contracts.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#143

Post by coding_lobster »

cuteboy19 wrote: post #57
fjkdlsjflkds wrote: post #14

Earlier quoted context omitted.

Any stablecoin that follows the same logic as DAI (i.e. overcollateralized debt-based stablecoins) could also apply (at least in theory). This includes (but is not limited to) sUSD, MIM, LUSD, MAI, agEUR...

The "collateral" is a bunch of useless tokens that can flash crash in an instant. It is the same thing as the luna/Terra system but with minting $2 worth of luna for $1 worth of UST. Any depeg event will only be faster as compared to luna

It is not the same because in the case of the coins above a flash crash results in liquidation of the collateral to support the peg. In the case of Luna there was no such mechanism as it relies on people doing the arbitrage required to maintain the peg.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#145

Post by throwaheyy »

ur-whale wrote: post #60
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 only thing that maintains the value of any asset (or currency) is the collective belief in that asset or currency. The only thing that maintains the value of any asset is the demand for it. Where that demand comes from may or may not be belief. Water has value because there is a clear demand for it, not because anyone believes in it. As long as there is someone who wants an asset, it has value. Belief is but a…

This seems an overly pedantic distinction. Demand is simply a result of belief in an asset’s value. If people didn’t believe an asset was valuable, they will not demand it.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#146

Post by BbzzbB »

vincnetas wrote: post #121
baobabKoodaa wrote: post #105

Earlier quoted context omitted.

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.

"... without continuous funding "

GP's last paragraph seems to imply to me too that trust is all that keeps the pegs. I think the billions of dollars in arbitrage opportunity is a bit more powerful than trust as we've seen a few days ago when USDT lost its peg, but what do I know

Trust keeps bank runs away, arbitrage keeps the peg tight (feeding into said trust).

Re: Algorithmic stablecoins are provably impossible without continuous funding

#147

Post by Geee »

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…

What you're saying is wildly untrue. You are redefining words. Trust is completely different thing than valuation in markets.

You don't need to trust gold or bitcoin. They are verifiable. Don't trust, verify.

Also, the US dollar doesn't work very well, so you're redefining reality. They're constantly abusing that trust and creating way more money than would be necessary or moral.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#148

Post by jqpabc123 »

tlb wrote: post #141
jqpabc123 wrote: post #135

Earlier quoted context omitted.

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…

The claim that major elements of the social contract can be derived through logic and reason is controversial. If you find yourself believing that our own social contract is the only logical & rational one, or at least the likely result of social progress, you might try reading Graeber and Wengrow's The Dawn of Everything. It covers a very wide range of alternatives that all made sense to the people in those societie…

The claim that major elements of the social contract can be derived through logic and reason is controversial.

The "logic and reason" here has to do with the fact that the social contract is sufficiently real and functional enough to transcend mere "belief" in most people's lives.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#149

Post by jqpabc123 »

mrpopo wrote: post #140
jqpabc123 wrote: post #135

Earlier quoted context omitted.

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.

Not just the "US" government --- most governments around the world do the same.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#150

Post by galaxyLogic »

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.

There's a big difference. Everybody may believe that you own your house. And everybody may believe you own 100 bitcoins. At issue is what is the exchange rate between bitcoins and say US dollars. If that goes to zero then you've lost the value of your bitcoins. You have not lost the ownership of your bitcoins, they have lost their value.

Whereas for your house, no matter what its market value would be you still have the right to live there and prevent others from doing so.

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