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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

#31

Post by samsquire »

sterlind wrote: post #30
samsquire wrote: post #19

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…

It's not recursion because the earth is not a closed system. Farmers don't have to pay for the energy used to grow wheat. The Sun provides that for free. Same with the oxygen, and much of the water. Value is created, it's not a zero-sum game (except from the perspective of universal entropy.) In a healthy economy, most of the value should be created rather than extracted from others. But ownership of fixed resources…

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 saying that the problem of costs is recursive, you need to produce more than you cost. As each of those people has the same costs that I do. So it can only grow in size and costs can only inflate.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#32

Post by jimbob45 »

alacritas0 wrote: post #26
samsquire wrote: post #19

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…

The United States is a society of excess. Yet, we still let people starve and go unsheltered. There is an easy solution that doesn't have the unreasonable expectation of the poor relying on the goodness of other people: tax individuals with high incomes at higher rates. The marginal tax rate for the highest income earners has steadily fallen in the past decades. People with those high incomes have the least marginal…

It’s not that easy and having money isn’t the problem here. If we could pay off the homeless to stop being homeless, you have to believe that we’d have already done that.

SF spends ~60k per homeless person per year (maybe more now). It’s clearly not money that is the limiting factor here.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#33

Post by VintageCool »

samsquire wrote: post #27
alacritas0 wrote: post #26

Earlier quoted context omitted.

The United States is a society of excess. Yet, we still let people starve and go unsheltered. There is an easy solution that doesn't have the unreasonable expectation of the poor relying on the goodness of other people: tax individuals with high incomes at higher rates. The marginal tax rate for the highest income earners has steadily fallen in the past decades. People with those high incomes have the least marginal…

Those wealth creators go elsewhere or stop doing a business if isn't lucrative. I think they're called Laffer curves. Tax more and people do less as it doesn't pay to do more labour and get less of it back.

The Laffer Curve argued that revenue from taxation might represent an inverted U shape with tax rate. If you were above the revenue-optimizing tax rate, then lowering the tax rate could increase revenue.

But that revenue-optimizing tax rate, which is the subject to much debate, is probably somewhere around 65% to 70%, far higher than the tax rates in the United States. We could surely increase taxes on high income individuals without doing much harm to the economy.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#34

Post by jqpabc123 »

SkyMarshal wrote: post #8
jqpabc123 wrote: post #5

Analysis aside, common sense suggests that it is very difficult if not impossible to manufacture long term stability in any system based mostly on speculation with limited hard assets to back it up.

More generally, I think we can state, it is difficult if not impossible to manufacture long term stability in any inherently unstable system, which all financial markets and human economies are. Better to acknowledge and accept that reality, understand the nature of the inherent volatility, and work to become robust and resilient against it. Scalable, self-similar, clustering, and long memory are some of the characte…

Stability; or the lack thereof, is relative --- with currency made from electrons and hardly any ties to real world economic conditions being a relatively extreme example.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#35

Post by IfOnlyYouKnew »

samsquire wrote: post #19

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 don’t get what point you’re trying to make. A baker can make bread for a thousand people with relative ease, there is no need for them to be poor. The US produces enough to feed and clothe and house everyone with ease, including both the working poor and others. They choose not to do so for various vacuous reasons, none of which have anything to do with the FED.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#36

Post by IfOnlyYouKnew »

sifar wrote: post #17
tablespoon wrote: post #11

Earlier quoted context omitted.

> Not a crypto fan but I'm beginning to see that our entire economy is proving impossible without continuous manipulation by the fed Just like driving a car proves impossible without continuous manipulation by its driver.

cue autonomous vehicles. Seriously though this is a very wrong analogy. The economy is more like an ecosystem where individuals interact with themselves & the environment. It doesn't need continuous manipulation. In fact it tends to distort than aid.

Every ecosystem needs outside input of energy, such as sunlight.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#37

Post by jmyeet »

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 blockchain, all the math in the world doesn't avoid the trust problem (eg it's been estimated that over half the Ethereum are owned by less than 10 entities).

Even backing a currency with gold (or any other asset) doesn't solve this problem. Additionally, it's not even correct. In years long gone the US government just maintained a peg between the US dollar and the gold price. Any reserves (which were never 100% anyway) are irrelevant to this. You don't need them. You just need sufficient capital to maintain the peg. Even if you had 100% reserves you still have to trust the government to honor redemptions and not to change the peg. If you have sufficiently deep pockets, you end up not even having to spend much money because no one challenges your peg.

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.

So going back to algorithmic stablecoins, it doesn't matter how much you have in reserve. It doesn't even matter if there's new money entering the system (as this article claims) to maintain the peg. If people lose faith in the "stable" coin, it's finished.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#38

Post by samsquire »

IfOnlyYouKnew wrote: post #35
samsquire wrote: post #19

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 don’t get what point you’re trying to make. A baker can make bread for a thousand people with relative ease, there is no need for them to be poor. The US produces enough to feed and clothe and house everyone with ease, including both the working poor and others. They choose not to do so for various vacuous reasons, none of which have anything to do with the FED.

I agree. It upsets me deeply that people are working poor and can never earn enough to stay still.

I am arguing that in a society each person needs funding from somewhere, it can only come from everyone else in exchange for their work. Each person therefore depends on their costs being provided by everybody else. This relationship is therefore recursive. As each person must also provide for everyone else that someone is providing for.

As we witness in the world, not everyone can produce more than they cost. Some people cannot afford to travel or stay near work. Opportunities are cut off from them.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#39

Post by mNovak »

> 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 moot, since it's not a purely closed construct like they're describing. Though perhaps this line of reasoning (equivocating to other financial constructs) could lead to fee pricing equations required for some notion of stability.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#40

Post by kamray23 »

IfOnlyYouKnew wrote: post #36
sifar wrote: post #17

Earlier quoted context omitted.

cue autonomous vehicles. Seriously though this is a very wrong analogy. The economy is more like an ecosystem where individuals interact with themselves & the environment. It doesn't need continuous manipulation. In fact it tends to distort than aid.

Every ecosystem needs outside input of energy, such as sunlight.

The economy gathers outside energy as the production of value, which is what the vast majority of companies do, and some of it disappears out the other end as consumption of goods with value.

It's perfectly true that the system is perfectly capable of running alone without any external stimulus applies. The economy will keep being the economy no matter how much you tamper with it. The main problem people have with that is not that the economy won't "work", it's that the economy working necessarily means things like heavy business cycles, cyclical unemployment, a general tendency of wealth to move upwards, and a relatively fast accumulation to the level where those who have accumulated wealth begin to have serious power over politics and will impose meddling with the economy for their benefit.

It will work fine, it working just isn't what humans generally want to happen.

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