Algorithmic stablecoins are provably impossible without continuous funding • Hacker News Board

Re: Algorithmic stablecoins are provably impossible without continuous funding

#61

Post by seanhunter » Mon, May 30, 2022, 7:00 AM UTC

I'm not sure I know enough to have a credible opinion about his underlying thesis, but it seems to me this article is wrong in lots of specific details:

1. "Stablecoin insurers" (in the author's terminology) are not short puts on the stablecoin, because noone has a specific right to force them to buy the stablecoin. Their position (as I understand it) is much more akin to some sort of swap where they pay/receive the difference between the stablecoin and the volcoin

2. Since it's a swap, then their position has 1 delta, so they don't "delta hedge". They need to make good losses on the stablecoin (and collect profits in good times)

3. There is no expiry so they are not long theta. They are collecting carry on the swap

Re: Algorithmic stablecoins are provably impossible without continuous funding

#62

Post by hgomersall » Mon, May 30, 2022, 7:12 AM UTC

ur-whale wrote: post #60

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. The only thing that maintains the value of any asset is the demand for it. Where that demand comes from may or may not be belief. Water has value because there is a clear demand for it, not because anyone believes in it. As long as there is someone who wants an asset, it has value. Belief is but a…

Indeed. The demand for most currencies comes from states requiring payment of taxes in said currencies.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#63

Post by zarzavat » Mon, May 30, 2022, 7:14 AM UTC

ozim wrote: post #58

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…

Gold standard fetishist forget that if there is a food shortage even tons of gold won't help them. In scenario where financial system collapses only real currency is skill - if you can make food from something available locally or be helpful like being a medic. Why would I trade a chicken that I can eat for piece of gold when I can trade chicken for sewing my wounds after being bitten by a stray dog.

There is a spectrum between everything going smoothly and complete government collapse. Most people worry about a Turkey or Argentina where the currency loses most of its value but the government still functions.

Even in failed states gold maintains value. For example in Somalia’s recent past, not only was gold still fully exchangeable but the existing Somali currency continued to work with counterfeit currency filling the vacuum.

What stops gold exchange is not non-existent government but any particularly strong and draconian government that decides that alternative forms of money are a risk to the regime (e.g. North Korea).

Re: Algorithmic stablecoins are provably impossible without continuous funding

#64

Post by knorker » Mon, May 30, 2022, 7:17 AM UTC

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

That simplifies too much. There's also the fact that all taxes on income, capital gains, and consumption must be paid in this currency.

It has a very real value, in that if you don't pay using this then people will come and lock you in a cell.

It's not just a collected belief.

I also believe that the government will by force not allow its own currency to be replaced within its borders.

That's a belief in a trusted third party, not a collective belief.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#65

Post by karsinkk » Mon, May 30, 2022, 7:23 AM UTC

Re: Algorithmic stablecoins are provably impossible without continuous funding

#66

Post by trhr » Mon, May 30, 2022, 7:31 AM UTC

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 price of bread has a net addition into the system in the form of sunlight. Seeds essentially germinate into wheat for "free."

In fact, you could make the argument that all of human endeavor is simply withdrawing from the bank of 4.x billion years of sunlight.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#67

Post by ben-schaaf » Mon, May 30, 2022, 7:32 AM UTC

jimbob45 wrote: post #32

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…

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.

That 60k per year seems to come from a small program where they're spending 60k per year for a tent, food and washrooms - twice the median cost of a one-bedroom apartment.

https://nypost.com/2021/06/26/san-francisco-run-homeless-enc...

Re: Algorithmic stablecoins are provably impossible without continuous funding

#68

Post by gigatexal » Mon, May 30, 2022, 7:32 AM UTC

So a pyramid scheme. The coins need more and more suckers to sustain it and fails when that supply dries up.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#69

Post by RandomLensman » Mon, May 30, 2022, 7:41 AM UTC

hgomersall wrote: post #62

ur-whale wrote: post #60

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. The only thing that maintains the value of any asset is the demand for it. Where that demand comes from may or may not be belief. Water has value because there is a clear demand for it, not because anyone believes in it. As long as there is someone who wants an asset, it has value. Belief is but a…

Indeed. The demand for most currencies comes from states requiring payment of taxes in said currencies.

I'd say the demand for most large currencies comes from the ability to buy stuff with them and being able to speculate on changes in value amongst them. The daily trillion dollar in FX trades are not tax motivated.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#70

Post by mywaifuismeta » Mon, May 30, 2022, 7:44 AM UTC

ur-whale wrote: post #60

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. The only thing that maintains the value of any asset is the demand for it. Where that demand comes from may or may not be belief. Water has value because there is a clear demand for it, not because anyone believes in it. As long as there is someone who wants an asset, it has value. Belief is but a…

Agreed. In the special case of currencies, demand follows belief. If people believe in an assert they will accept it for trade, which may in turn crate demand. This leads to a cycle where more demand often strengthens the belief.

The issue with most crypto tokens is that its demand only exists within the closed crypto ecosystem in the form of liquidity, not in the real world. This makes is much easier to shake belief.