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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

#171

Post by pfraze »

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…

Ethereum has intentional soft and hard forks; whatever that process is, that’s it’s government. Whether that government chooses to address problems which challenge Ethereum‘s legitimacy is up to them.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#172

Post by abakker »

mettamage wrote: post #125
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.

Yep, ultimately it's all belief. The fact that we have countries is a collective belief as well. It's feels very similar to a game. A serious one at that, with real consequences. It does not have a clear winning and/or losing condition though.

It is a game! Hence “game theory” and other reductive, useful abstraction used to describe and model the real world.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#174

Post by DoughnutHole »

galaxyLogic wrote: post #150
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.

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…

That is entirely still a societal norm and a statement of personal belief about specific rights. You might believe those rights to be inalienable and that your property is necessarily yours, but that doesn't actually translate to to a guarantee of maintaining that possession in the absence of the institutions that currently protect that ownership.

Anyone who's lived through a massive societal upheaval, collectivisation, dictatorship etc can attest to this - your ownership of property only means anything in as much as it's protected. If the state fails, or if society's understanding of private property radically changes then your investment is only valuable if you can hold on to it.

Even in the private-property loving West the value of an individuals property can often turn out to just be the amount that the state decides to pay them when they seize it via eminent domain.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#175

Post by abakker »

LOL. “Transaction tax” and “devaluing their asset to pay insurers”. Both things that are handled by Base rate inflation. The missing part of this analysis is that it is very hard to peg a deflating asset. The other problem is that from a monetary policy POV, you can’t defend it in a deflationary system without capital inflow because the whole system is denominated in a different currency which is inflating.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#176

Post by usrn »

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…

You probably don't own it outright and without the collective belief in its value the mortgage would be under water.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#177

Post by mvolfik »

Sorry for hijacking this thread, but can somebody explain like I'm five, what's the point of algorithmic stablecoins?

My understanding of the term 'stablecoin' means that it is a crypto 'proxy' to some fiat currency, typically US dollar, just to avoid the actual conversion between crypto and fiat (because of taxes etc). So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? You give me a dollar, I mint you a coin. Somebody sends the coin back, I return them the dollar.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#178

Post by kuramitropolis »

galaxyLogic wrote: post #150
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.

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…

Rights are constructs, let's talk capabilities.

If the value of _dollars_ goes to zero, the house doesn't collapse. The social consensus and enforcement mechanism that protects your right to live there probably does though

Re: Algorithmic stablecoins are provably impossible without continuous funding

#179

Post by samsquire »

kamray23 wrote: post #52
samsquire wrote: post #31

Earlier quoted context omitted.

I need to pay the farmer indirectly through supermarket food, the electricity company, the water company, the gas company, my phone manufacturer, my computer manufacturer, my rent for my landlord or my mortgage to the bank. The farmer doesn't pay the sun but they still have to pay other costs ad infinitum. There is no last cost. Each of those people also have the same problem I'm not arguing for zero sum. I'm just sa…

There are several issues with that. The largest one is that you assert that the costs can only inflate. They cannot. TL;DR – Yes, but the added value gets smaller each recursion, such that even if you add on an infinite amount of these costs it will only come out to a finite value. The productivity of a single person, which in today's industrial world is immense, makes these costs so small they might as well be cents…

Thank you for writing this down.

What I witness in the world is endless costs, from housing maintenance to shelter and rent and mortgage costs and transport costs. Everything is very expensive. Housing is not cheap relative to salaries nor is transport.

If I wanted to pay someone to do work for me, I need to pay enough to pay all the workmen's costs.

I need to provide for myself and provide enough revenues for everybody else to pay for these things. So the prices you pay provide revenues for these costs fans out in all directions through everyone you buy things from.

Is the finite value that these cycles larger than the money supply?

There is a finite amount of work that can be done per period of time but some people work 60 hour weeks. But work is renewable until you ruin your joints and knees or health problems.

I am sure everyone wants to earn more and has costs they want money for and want larger houses and to own housing rather than rent.

I didn't even include profits or value addition to my theory as they need to come from somewhere.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#180

Post by xwdv »

mvolfik wrote: post #177

Sorry for hijacking this thread, but can somebody explain like I'm five, what's the point of algorithmic stablecoins? My understanding of the term 'stablecoin' means that it is a crypto 'proxy' to some fiat currency, typically US dollar, just to avoid the actual conversion between crypto and fiat (because of taxes etc). So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars? You give me a…

Because you can make a lot of money keeping a fraction of the dollars you get in cash and keeping the rest invested in treasuries.

Eventually you will get tired of the work and costs involved in maintaining your dumbass coin in perpetuity for no benefit.

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