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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

#161

Post by HelloNurse »

mNovak wrote: post #39

> To be in balance, the Stablecoin must provide real utility to the Outside World that transcends the Stablecoin/Insurer construct. Specifically: > 1. There must be a transaction tax for real utility provided by the Stablecoin. Don't all major reserve-based algorithmic stablecoins charge some kind of minting/redemption fee, to reward the risk taken on by reserve holders? And that makes this whole argument somewhat mo…

Minting consists of spending money (hardware, energy, human work...) to obtain some cryptocurrency units, basically the same as buying them from someone and an influx of actual money into the crypto scheme (which might or might not compensate the risk takers as delineated in the article).

Re: Algorithmic stablecoins are provably impossible without continuous funding

#162

Post by candiddevmike »

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://www.gnu.org/software/gnu-crypto/

Re: Algorithmic stablecoins are provably impossible without continuous funding

#163

Post by kgwgk »

jmyeet wrote: post #153
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…

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-sanct…

Why stop there? What makes an asset exist at all if not someone’s belief? Persistence is not a physical property as much as a phenomenon of perception. We believe that what we see is what we saw - and we believe that who we are is who we were. Etc.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#164

Post by snikeris »

jqpabc123 wrote: post #148
tlb wrote: post #141

Earlier quoted context omitted.

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.

In other words, the belief is pragmatic.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#165

Post by foobarian »

doctor_eval wrote: post #159
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.

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…

> From what I can see, it has no effective rule of law; no possibility for the creation of an effective enforcement body.

In early crypto days there was a general feeling that the "power of math" (i.e. how hard it would be to break various hash/public key algorithms) is the enforcement body and the reason you don't need a government and a police force. Maybe smart people saw through that, or maybe the experiment just had to be done to see how this actually turns out in practice.

Your points are why I thought an official US crypto coin could work. But there is not that much net added value compared to what credit cards offer.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#166

Post by [deleted] »

coldtea wrote: post #116
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…

> My house is valuable to me even if there isn't a collective belief in it. That's because it also has use value (and land use value), etc. Crypto coins don't have any. > Most financial assets are backed to some extent by real assets. Negligibly so in modern economy.

[deleted]

Re: Algorithmic stablecoins are provably impossible without continuous funding

#167

Post by BlueTemplar »

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.

Hawala is widely used, but since it does the same job as a cryptocurrency (decentralized ledger), what would be gained by adding a cryptocurrency on top of it ?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#168

Post by BlueTemplar »

random_comment wrote: post #129
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. Hello jmyeet! Unfortunately, I believe this statement, as you have given it, is untrue. I hear it often, as it is continually and frequently asserted by crypto enthusiasts (and I am not suggesting you are one of those). ----- For assets, value is grounded in utility (whether to do some useful funct…

I guess it's kind of the point of TFA "not proving enough", everything is a "Ponzi" : can't escape the law of thermodynamics !

Re: Algorithmic stablecoins are provably impossible without continuous funding

#170

Post by AlexandrB »

sifar wrote: post #132
imtringued wrote: post #47

Earlier quoted context omitted.

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 so…

The idea that monopolies are formed due to government intervention runs counter to my lived experience of watching the Google Search and Facebook monopolies form in largely unregulated markets. The only viable competitors to Facebook were acquired before they could become a threat, Google meanwhile has used its search monopoly to fund monopolistic takeovers of other markets (web browsers come to mind).
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