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Algorithmic stablecoins are provably impossible without continuous funding

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Re: Algorithmic stablecoins are provably impossible without continuous funding

#151

Post by galaxyLogic »

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…

Company is not fiction to believe in, it is an agreement a contract by the society encoded in a set of laws. The laws governing companies, unlike the market-value of assets, are very resistant to change. Market values change very often, especially values of crypto-currencies. Laws don't change often.

A company exists and has valid standing not because people believe in it but because the law says it exists. It is easy to prove beyond reasonable doubt that a company exists (or not). That has nothing to do with whether people believe it is valuable.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#153

Post by jmyeet »

pid-1 wrote: post #46
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. 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…

My point is more fundamental than anticipating market mispricing within a certain set of constraints.

How does a company make money? Why does it distribute that money to shareholders? Why can't someone working at the company just keep all the money? Why can't the bank just confiscate it?

The answer at all levels is the the threat of violence. Property rights (eg to the money) are enforced by the threat of state-sanctioend violence, for example the police showing up at your house and throwing you in jail if you don't comply with laws.

So why would the police show up and do that? Why would the courts enforce those laws? It's not just the threat of violence, essentially. It's the collective belief in that system.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#154

Post by NikolaNovak »

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…

>>My house is valuable to me even if there isn't a collective belief in it.

Right. I believe the point of the post you replied to is that while it may be "valuable to you", it also may or may not "have value" (which I interpret as being exchangeable / interesting to other parties), which requires common belief/faith that it has value (basically a circular definition). I could be misinterpreting one or both :)

Re: Algorithmic stablecoins are provably impossible without continuous funding

#155

Post by jmyeet »

simonh wrote: post #107
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 u…

It's true that utility is also a factor but it's extremely limited.

The house you and others have mentioned is an easy one. That whole concept of ownership is reliant on an entire system existing and enforcing those "rights". It's the threat of violence that prevents someone from showing up, "claiming" your house and kicking you out.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#157

Post by TomSwirly »

baobabKoodaa wrote: post #105
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.

As long as you're willing to expend unlimited amounts of money doing so. But no one is.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#158

Post by HelloNurse »

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…

The "belief" that value depends on is the belief that there is demand, so the good can be exchanged if desired. The "trust" is that people are going to want the good tomorrow, similarly to today.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#159

Post by doctor_eval »

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.

I'm not an expert in this, but I think that it basically starts with the political concept of legitimacy [0] - government, with the consent of the governed - which leads to the monopolisation of force (police, army etc), which provides a concrete means of enforcement for the collective belief of "property".

That is, the reason that you can call the cops when strangers take over your kitchen is because we have a very real police force, whose are permitted (even required) to use force in order to protect your property. Property may have started out as a collective belief, but the processes put in place over the last few centuries - especially the concept of Rule of Law [3] - have made it very real.

But ISTM that crypto works outside of these norms. From what I can see, it has no effective rule of law; no possibility for the creation of an effective enforcement body. There appear to be no consistently applied consequences of cheating, either intentional (eg, rug-pulls) or not. People seem to steal money using crypto scams all the time [1]; from what I've seen of it, the world of crypto seems to pretty much embody my personal, nightmare interpretation of anarcho-capitalism [2].

So while I agree that property is a collective belief in theory, in practice it has the rule of law, the legitimacy of the state, and the monopolisation of force supporting it. Crypto seems to have none of these things supporting it; I'm yet to be convinced that it is even, actually, property.

[0] https://en.wikipedia.org/wiki/Legitimacy_(political)

[1] https://web3isgoinggreat.com

[2] https://en.wikipedia.org/wiki/Anarcho-capitalism

[3] https://en.wikipedia.org/wiki/Rule_of_law

Re: Algorithmic stablecoins are provably impossible without continuous funding

#160

Post by BlueTemplar »

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.

But it's kind of a problem that TFA tries to "prove" otherwise without a big disclaimer about the limits of his model in the real world...
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