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Algorithmic stablecoins are provably impossible without continuous funding
191–200 of 264 posts
Re: Algorithmic stablecoins are provably impossible without continuous funding
#192This 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…
Belief is not well defined. The dollar has value because it is useful. Bitcoin may also have value to the extent that it is useful (e.g. for speculating, money laundering, grey/black market transactions). Thus usefulness or utility of a currency is a better measure of value than belief whatever that means.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#193Sorry 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 b…
Except that Tether has no legal requirement to allow you to redeem their coins, aren't 100% backed by USD, and has a history of lieing about their backing.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#194This 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.
> So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might.
What many people call fiat is in fact partly a proof of violence consensus algorithm. Practically applied it means the sovereign will create a demand for its currency by imposing taxes denominated in that currency on its subjects and then threatening or using violence against parties that don't pay those taxes. However, that alone is insufficient to maintain the value of a currency. Mr. Mugabe of Zimbabwe surely had no philosophical aversion to using violence to maintain the value of the Zimbabwean dollar, but the collapse in his country's productive capacity rendered that moot.
Thus we can see that another major part of what makes the US dollar work is that the US economy that the US government has the power to tax is extremely large, productive, and well-diversified.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#195This 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.
It surely is, but this is just a semantic play on the word "value". You mean something like "personally important" in that sentence, the comment you were replying to was using it under its well-established economic definition.
In fact, your house is *not* valuable (in the economic sense) if there isn't a collective belief in it's equivalent in currency. Rather: it is exactly as valuable as the market is willing to pay, which is just a statement of the definition of "market value". That's what "collective belief" means in this context.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#196This 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…
"So what actually makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might." It's the ability to demand and enforce tax payments in that denomination - with the consequence of not doing that being you will lose property and liberty. Obtaining the denomination to settle the tax then becomes the discounted opti…
I would say yes, in the sense that the government would cease to exist if it were to declare: "Compute your taxes in whatever unit of account you prefer."
But I think a broader statement is that the "long dick of the US government" is the collective expectation for the behavior of major world governments. On the other hand, it's worth noting that US currency is not absolutely stable.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#197I'm looking for a reliable source on why LUNA crashed, and am unsure where to find one. Anyone know of a good article or video explainer? Thanks.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#198Earlier 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.
That feels to be reductionist beyond the point of usefulness. Treating physical objects and violence as abstract concepts seems to always lose something, although I find it difficult to pinpoint exactly what.
Re: Algorithmic stablecoins are provably impossible without continuous funding
#199Earlier quoted context omitted.
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 b…
Except that Tether has no legal requirement to allow you to redeem their coins, aren't 100% backed by USD, and has a history of lieing about their backing.
Sure, they're unregulated with little or no oversight and could be spunking it all tropical islands, but that's the theory :)
Re: Algorithmic stablecoins are provably impossible without continuous funding
#200Earlier quoted context omitted.
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).
You also get into the regulatory capture. Could anyone today create another YouTube with all of the necessary content controls for all the different countries in place? Or create a baby formula making company for current events?
It's possible - just it represents a significant amount of work that needs to be invested in the product before it can see the light of day (compared to other domains where there's less needed to invest).