MakerDAO’s “DAI” stablecoin is breaking, as predicted
prestonbyrne.com
prestonbyrne.com
For the vast majority of people looking for a stable coin, this is exactly what they want. They don't care so much that on a particular exchange DAI is worth more or less than $1, they care that in a week, or a month or a year DAI will still be worth "about a dollar" and not "100x USD" or "x/100 USD". DAI has the mechanisms necessary to make it profitable to drive the price of DAI back toward 1 USD if it loses its peg and those mechanisms have been shown to generally work in the wild so far.
I have personally made a few bucks when DAI transiently slipped its peg in the past. There are people actively authoring bots that profit off of DAI losing its peg and as those bots become more efficient and gain capital, I think we'll see DAI slip its peg less and less often.
This is not what the MakerDAO team, nor any other stablecoin shill, is claiming. They are claiming the system "ensures" that the stablecoin is "a money that will always maintain its purchasing power."
"Ensure" and 'always' don't mean "trend towards over time." They mean always, as in all the time. If their intention is to sell a different product, I can only suggest they make more representations which are a little harder to falsify.
I guess you're technically correct that their marketing material claims to go beyond this in a eay which is technically impossible
You make some good points but I'm not sure labeling everyone and everything as "shilling" is helping your case at all.
A good stable coin will have pressures that push that drift back toward the target, but it is impossible to stop the drift from ever occurring. The USD itself presumably targets some basket of goods, but it drifts away from that basket of goods. So even the USD isn't a "stable coin" by your definition.
Not saying it's easy, or I could do it... just that it's an inevitability, right? What happens then?
Do these assertions really hold?
1) That if you are able to make money on a market your presence makes that market more efficient
2) That tricking the arb bots into losing their money means you take it
? The Parity hack wasn’t a money-making endeavor, it just burned the cash.
"The market can remain irrational longer than you can remain solvent", springs immediately to mind.
edit: Also, pegging a cryptocurrency to the dollar seems almost comedically perverse. What is it for?
The frequently cited money transmission benefits of a cryptocurrency, without value instability of playing games with monetary policy.
This would seem to indicate that a blockchain coin pegged to the dollar only keeps any marginal utility at all during the period where the technology is novel, as blockchain tech either crashing or becoming successful, would both be events that kill it.
The US dollar, as such, often hasn't adopted new developments in money transmission directly (at least, not at the consumer level); the circle of businesses facilitating USD transactions has, but a dollar-pegged cryptocurrency is essentially just a new part of that ecosystem.
OTOH, the dollar has adopted, directly, new tools in money supply management, several times in its history.
The Federal Reserve began moving money electronically in 1915 [1]. (You read that right. Nineteen fifteen. In the early 80s, telex transmission services began.) The back offices of finance are surprisingly reactive to new technology, when the risks and rewards balance properly.
The general thing you want is for your currency to have stable purchasing power (for goods and services) in the short term, maybe inflate it slowly to encourage investment - monetary policy basically. Targeting a USD peg is a way to do this, of course ideally you'd want your currency to have a monetary policy independent of USD
TL;DR: The more volume DAI has on public exchanges, the tighter it will hold its peg.
We have stablecoins or tethers (manny attempts to create something people want) - people want some form of money for peer to peer value transfer, that will allow arbitrage between exchanges and connection to "real world" as almost nobody is pricing their services in ethereum/bitcoin.
Let's say we have 3 competing stablecoins and Gresham's law will apply = people will be moving to "best" coin and leaving others holding bad ones. Imagine that you have 2 banks - one with good reputation and large reserves and second one - almost without them, yet both will be issuing private money redeemable for each other. So how come one can attract customers to his specific stablecoins solution? By offering interest rate - a stablecoin that pays dividend will be better than stablecoin without it.
It's complicated - ideologically stablecoins are similar to economical perpetuum mobile devices, yet the first are impossible due to laws of physics and second one may work because economy depends on human behaviour and humans may act irrationally.
It's an index basically, not an actual commodity.
(Except of course in the sense that Everything Is A Commodity in the crypto world.)
https://coinmarketcap.com/currencies/dai/#markets
I do expect DAI to be more stable as adoption and trading volume grows.
Author of is article is a troll. In his last post he wrote literally:
> Having taken fifteen minutes to review the MakerDAO paper
MakerDAO is probably one of the most ambitious projects on Ethereum with pretty complicated structure. Draw conclusions on 15 minutes of review is nonsense.
He may have an incendiary and flippant writing style, but it’s worth noting that he was a founder and COO of Monax (née Eris) which released an open source private-chain fork of Ethereum in 2014. He’s qualified to have an opinion on complex smart contracts and not be called a troll. If anything he’s emblematic of the frustration felt by many early adopters who understand that the hype bubble is making it hard for this rather experimental technology to meet inflated expectations (Vitalik recently being another prime example).
http://www.businessinsider.com/ethereum-founder-threatens-to...
I also have a strong background in the field and the MakerDAO project took me a long time to understand. The author makes several mistakes in his opening paragraph.
I'm not entirely convinced that the project will work as intended, but the author clearly doesn't even understand the basic ideas.
"If the price of 1 BASE is above $1, the blockchain prints new $BASE to holders of “BASE Shares” (mother of god), a standalone cryptocurrency which is issued in the genesis block and held by early adopters, which then distributes new Basecoins to them as a “dividend.” Holders of “BASE Shares” are free to either hold onto their Dividend-Basecoins (thus not bringing the price down) or sell them into the market, pushing out the supply curve and bringing down 1 BASE’s price. This process continues until the price of 1 BASE drops to $1."[0]
Actually, the Basecoin will first go to the Bond holders. I think there are reasons to be skeptical of Basecoin and stable cryptocurrencies, but this guy's "articles" don't really seem to touch on those.
https://prestonbyrne.com/2017/10/13/basecoin-bitshares-2-ele...
Only if the price is below $1. You have to read the next paragraph of the blog post to get to that.
The first is distributed destruction. Everyone destroys some of their coins to raise the value of remaining coins. The problem is that this is a prisoner's dilemma: defection is the best strategy. Some people will not destroy their coins, thus increasing their relative position to others who do. Over time "destroy your coin" signals will simply be ignored.
Not to mention cold wallets, which simply don't participate in the ledger unless it suits them to. Are they meant to simply nuke coins upon rejoining? This introduces an incentive to stockpile coins in the hope that the policy will change in future.
The second approach is centralised. Someone has the authority to mark some fraction of coins as destroyed. Rather undermines the decentralisation thing people like.
Just like in Bitcoin, it's not up to each user to be honest and prevent double-spends, it's instead up to the network that checks and re-checks everything - the destruction of those coins in the example would be enforced by the network. Not relied on users.
The network can check that transactions occurred, but it can't really make people perform them. It's a ledger system.
If someone doesn't post a coin destruction event, how do I know why? Is it because they're cheating? Because of a cold wallet?
You might say "I will make coin destruction a precondition for any other transaction". Now the incentive of a hoarder is to sit on their wallet while destruction is high and only enter the market when destruction is low. This means liquidity is tied to how far off the peg you are, which isn't a desirable property.
OK, how about summing up the destruction tally for any wallet that's inactive, to be paid in a lump sum? Now you're telling me that my wallet can be completely drained over time by a destruction tax that realises only if I open my wallet. Not very attractive.
OK, maybe you just destroy the net of coin creation and coin destruction at transaction time. This seems more likely to work, though I'm unsure whether I can evade it by changing addresses. I'm also unsure what incentives miners have to validate coin destruction. There's also the problem of how it cope with truly heavy amounts of capital flow. Watching a numerical balance surge up and down during a single day might be unattractive to a lot of holders.
If I have two moldy banana peels worth approx $0 each and I burn one of them, the other will presumably still be worth $0.
But this whole conversation even comes up because there are people that want to use such a coin. That means demand >0.
Isn't that a freakin' textbook definition of a Ponzi scheme?
Basically, since the interest rate is fixed (at 0 in this case, I believe), there's an incentive to sell DAI in favour of some higher-yielding currency, which creates a downward pressure on the price. So short of preventing DAI from being sold somehow, in order to maintain a peg, someone needs to pump money into DAI at a loss.
You can try to build a complicated system to hide all that, but it seems the goal of a stable peg is simply impossible. Even for nation states it is only possible in the case they have sufficient resources and the will to maintain a peg.
Also claims that a collateralized stablecoins "only works if the collateral value keeps rising", and that selling something is equivalent to using it as collateral
This is the situation with Tethers right now.
I do remember tethers parent company basically couldn't get any US bank accounts
In the same “audit”, Friedman stated they did not evaluate if tether owned those accounts, had access to the funds, if those funds represented anything else besides the backing of tether[1].
[0]https://tether.to/announcement-transparency-update/
[1]https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co...
Tether is a money-printing scam by a company who had their bank account frozen, so instead of handling USD they came up with the wonderful scheme of USDT.
https://medium.com/@bitfinexed/spoiler-alert-the-institution...
"Absent a reasonable legal justification not to redeem Tether Tokens, and provided that you are a fully verified customer of Tether, your Tether Tokens are freely redeemable.
Persons ordinarily resident in, and nationals of, Prohibited Jurisdictions or Sanctioned Persons under Applicable Sanctions Laws; Persons and Government Officials believed or suspected to be transacting in the proceeds of corruption, bribery, or other crimes under Applicable ABAC Laws; and Persons believed or suspected to be engaged in money laundering or terrorist financing under Applicable AML/CTF Laws are not permitted to be customers of Tether; are not permitted to cause Tethers to be issued or redeemed; and, are not permitted to hold or transact in Tether Tokens.
Furthermore, residents of certain U.S. states are not permitted to be customers of Tether; are not permitted to cause Tethers to be issued or redeemed; and, are not permitted to hold Tether Tokens.
Beginning on January 1, 2018, Tether Tokens will no longer be issued to U.S. Persons."
The whitepaper abstract also states "issued tokens are fully backed and reserved at all times." [2]
[2] https://tether.to/wp-content/uploads/2016/06/TetherWhitePape...