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Algorithmic stablecoins are provably impossible without continuous funding

fragileequilibrium.substack.com

181–190 of 264 posts

Re: Algorithmic stablecoins are provably impossible without continuous funding

#181

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…

> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars?

Q: Where would you actually keep the dollars?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#182
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. If people suddenly stopped believing that living in your location makes sense, the value would drop very much. See ghost towns.

To a certain degree yeah, but that has an interesting balance of, not being a finance guy, intrinsic vs extrinsic value? A great example is my rural property; my wife paid $1 for the land 20 years ago, and I paid $300 for the 40 year old mobile home we put on it. On the market, it probably wouldn’t be worth a whole lot, but to us it is an absolutely wonderful place that we treasure very much. It’s exceptionally unlikely that anyone would ever offer us a price that would convince us to sell. No one really wants to live in the area we live in! (Although Starlink has had a disproportionate effect on that, now that we’ve got wonderful internet out there)

A different belief shifting, though, would change the equation dramatically: either a shift towards less exclusive property ownership (e.g. theoretically requiring any non-primary residence to be rentable or something crazy like that) or dramatically higher tax burden for non-primary residences. If the annual upkeep costs were to increase, the external value wouldn’t change much (it’s already pretty close to zero), but the intrinsic value for us would drop dramatically and we might consider dumping it.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#183
post #94
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're confusing having value to others with having value to yourself.

I can be happy with a nice rock I found on the beach if I really love it and it's important to me. However, what we are taking about here is are assets which have a wider value on an open market.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#184

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…

It costs (a lot) of money to move dollars between people; how would I aquire DumbCoin without physically traveling to you and buying it?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#185

Earlier quoted context omitted.

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.

As pragmatic as your "belief" that you own the computing device used to make your post.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#186

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…

There is - this is exactly what Tether is. It's the largest, most liquid of the stable coins with someone like $80bn of coins in circulation [1]. Binance and Coinbase also have their own as well which are also pretty big.

As far as algorithmic stable coins are concerned, I have no idea what the point is. Largely experimental as far as i can tell (but pretty much guaranteed to fail given how they work)

1. In fact so big now that cash managers and corporate treasurers keep an eye on Tether as they have a material impact on the bills and CP markets.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#187

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…

This is pretty much what USDC is.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#188

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…

> So why isn't there just a DumbCoin(tm) that simply is 1-to-1 backed by the dollars?

Those exist (like USDC), but they rely on a trusted entity holding the reserves.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#190

Let me share my theory that the economy is impossible or paradoxical and that the American dream is impossible and that everything is built on by faith. To buy a loaf of bread, the price needs to pay for the wheat, ovens, energy and the employee costs. This relationship is recursion. The staff of the bread company need to afford bread of their own and shelter and energy and transportation. Everyone is thereby support…

I am having trouble understanding your comment. Farmers and bakers easily produce more food than they need to stay alive themselves. When people start a business they must borrow money and usually pay interest. That interest forces you to be profitable, you can't just run your company at 0% profit as that would only pay for your salary and the salary of your employees and the materials and machines you bought. It is…

I guess my thought process goes similar to this.

I am one person out of 7 billion. I need to provide for myself, everything I pay must cover the costs of all the costs of those people I bought from. When people buy my labour they must cover my costs of providing for everyone else.

My work and the work those people are doing needs to pay all those costs. We effectively pay eachother to work at what we are independently good at - trade.

But a worker only receives revenue from the work they do (I'm excluding unearned income)

If everyone gets everything they need ultimately from other people, and each of those people needs to get everything they need from everyone else - and sometimes the same people.

Where does the salary of the workers I buy things from come from?

I feel intuitively it doesn't matter how much bread someone can create, the total revenues from selling bread in general needs to cover the costs of all their employees and the business costs themselves.

But this process repeats for all transactions the total transactions for MasterCard pays the bills that MasterCard employees have.

Everyone needs to earn more than they cost but so does everyone else! How can this not inflate endlessly over time?

When I look at government deficit and debt levels of the world, people don't produce more than they cost and relative and absolute poverty.

What's the proportions of owners of wealth? Compare the bottom 99% with the top 1%.

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