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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

#81

Post by charcircuit »

>In the event that the funding comes from new entrants into the Stablecoin/Insurer ecosystem, the system is definitionally a Ponzi Scheme and is unstable.

No, that is not the definition of a Ponzi scheme. A Ponzi needs funding from outside money to continue to operate, but not everything that needs outside funding to operate is a Ponzi scheme.

As an example let's create a gambling system. Any deposits made into the house account gives you a proportional share of the profits of the system. If the house gets lucky investors can make money. If they are unlucky the house account can run out of money and require outside money to work again. This gambling system isn't a Ponzi scheme at no point are you paid out with new investor's money. If you are lucky you are paid out with gambler's money and if you unlucky your investment goes to 0.

Edit: Even with a positive house edge the house can get unlucky and go bankrupt.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#82

Post by automatic6131 »

samsquire wrote: post #38
IfOnlyYouKnew wrote: post #35

Earlier quoted context omitted.

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…

>As we witness in the world, not everyone can produce more than they cost

And we also witness that others can produce more than they cost. So it could (actually, is and has been for the last ~500 years) be that overall, the average person produces more than they cost. Forget your recursion idea.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#84

Post by EGreg »

The only way I think a stablecoin can work without trust is to be backed by another coin which is deflationary and always in demand. Such as a gas coin that has no block rewards but burns some percent of the mining fees on every transaction. As long as the network is used for transactions, people will voluntarily pay gas fees and deflate the coin (unlike Safemoon which burns it on transfer, paying to secure transactions is a service and the miners can just raise their fees if they want to make more).

Then theoretically as long as there is demand for this coin, it will go up in price and therefore can back any sidechain coin that will grow slower in price (or better yet, gradually drop in price relatively to it like the dollar).

That’s what we are planning to do with Intercoin:

https://community.intercoin.org/t/intercoin-application-virt...

Re: Algorithmic stablecoins are provably impossible without continuous funding

#85

Post by notch656a »

Tepix wrote: post #83
mcs5280 wrote: post #7

Not a crypto fan but I'm beginning to see that our entire economy is proving impossible without continuous manipulation by the fed

Most people think that a currency guided by an entity works better than an unguided one.

If you can guide a currency and there is some power imbalance in who is doing the guiding, then that can turn out to be a nasty problem. For instance, there is some asymmetric effects if the entity doing the guiding dilutes savings by pumping the money supply and simultaneously buys mortgage products while setting a central bank lending rate of near 0%.

Beauty is in the eye of the guider.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#86

Post by notch656a »

gigatexal wrote: post #68

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

USD has the same issue. The dollars continually get "used up" and need reprinted. Transferring electronic money burns energy and labor, and costs labor at the treasury and fed to mantain.

If stablecoins are a pyramid scheme, the USD is too. Virtually every currency is negative-sum, destroying value every time they are spent.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#87

Post by Ntrails »

pid-1 wrote: post #46
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. Put another way: there is an inescapable component of trust in every asset Most non currency assets are cash flow generating financial instruments. If analysts don't believe a company is worth a dime, it can show them wrong by being profitable and paying dividends. Edit: I think my point is - even…

I cannot remember where I read this, but it was a view that basically the mere concept of a "company" is a collective fiction that we all believe in. As are nations, laws, etc etc. The idea that "tesla" is an entity one can interact with. That this "tesla" thing has value in and of itself. They're derived from beliefs in a system. Which could evapourate and render the idea of value meaningless.

I don't think this is very useful, since "yeah but without society there are no companies, money is nothing" doesn't take us very far! But hey.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#88

Post by bombcar »

pa7x1 wrote: post #80
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…

> eg it's been estimated that over half the Ethereum are owned by less than 10 entities You throw this kind of claim without providing proof. Unfortunately, it's a claim I have seen made before (e.g. https://www.financemagnates.com/cryptocurrency/news/top-10-e... ) and it doesn't hold any level of scrutiny. Although you embellish it and exaggerate it even further. This kind of number typically assumes that a smart co…

Why restrict it to circulating supply? Is there some other type of ETH that isn’t circulating?

Re: Algorithmic stablecoins are provably impossible without continuous funding

#89

Post by notahacker »

nostrademons wrote: post #15
endisneigh wrote: post #12

Earlier quoted context omitted.

What does this even mean? How would fiat work without control?

"When a measure becomes a target, it ceases to be a good measure." The idea behind prices in a market economy is that they're an information-carrying abstraction. They let producers at every stage of the value chain understand the relative costs that go into different alternate ways of producing a good, without needing to understand every single stage of the supply chain and all the decisions that their suppliers mad…

> So rates get pegged below the natural rate of interest (which equilibrates supply of savings with demand for productive investment)

But the only body even attempting to determine what "productive investment" is and respond to it is the Fed. Savers are interested in money returns or at least preserving their holding which in many feasible circumstances (chronic instability, zero sum economies with fixed currency supply) is most reliably achieved by not investing in anything productive, not whether their investment makes optimal use of a country's productive capacity. There's nothing more "natural" about production decisions taking the spot price of a commodity the monetary authority has designated as money, or an arbitrary growth rate for money, or how badly undercapitalised wildcat banks are as inputs, and there's nothing about a regime not trying to avoid bubbles or busts that makes it inherently less likely to result in them.

Re: Algorithmic stablecoins are provably impossible without continuous funding

#90

Post by aqme28 »

bombcar wrote: post #88
pa7x1 wrote: post #80

Earlier quoted context omitted.

> eg it's been estimated that over half the Ethereum are owned by less than 10 entities You throw this kind of claim without providing proof. Unfortunately, it's a claim I have seen made before (e.g. https://www.financemagnates.com/cryptocurrency/news/top-10-e... ) and it doesn't hold any level of scrutiny. Although you embellish it and exaggerate it even further. This kind of number typically assumes that a smart co…

Why restrict it to circulating supply? Is there some other type of ETH that isn’t circulating?

Yes. A lot of it has been burned (sent to nonfunctional addresses), for example.
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