Basecoin, aka the Basis Protocol
prestonbyrne.com
prestonbyrne.com
Are investors just betting on pedigree at this point? In which case, is a Princeton undergrad degree really worth that much?
Moreover, their stint in Google Search lasted maybe 2 months, but is still prominently displayed in their bios. Is that worth another few million?
I can't think of a better example of the SV echo chamber when an investment like this is announced. Even color.com and Juicero had more experienced founders/prototypes.
The future looks bleak when you see fashionable SV outfits leading the blind. It's no wonder why diverse founders with great ideas have trouble getting funded when so much money is going to companies like this.
My comment was aimed at the investors who, with little compelling info, bandwagoned into pouring in millions. That, to me, is discouraging.
It's not a bad idea, it's actually a great idea and if DAI or BaseCoin turns out to be stable-ish over the long term, then it will be incredibly useful for the crypto ecosystem. Honestly, even if DAI fluctuates a few pennies here and there, if it's stable-ish it will be useful for a wide variety of services and applications.
DAI has a goal of adding additional forms of collateral in the future. One could see a coin like DAI being backed by a mix of Gold, real estate, commodities, or securities to achieve greater stability.
I think sustainable synthetic blockchain assets are possible, but they will always have complicated risk/reward profiles that won't fully mirror the underlying asset they are designed to model: The dream of a truly "synthetic dollar" will always remain a dream.
EDIT: I should clarify that I think DAI coin may still be a useful construct for some situations, but it's going to be an asset with very different properties compared to any target real-world asset.
Could you give some pointers for further reading on the subject please?
For other history on synthetic assets, read Preston's posts and also Vitalik's posts such as https://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal...
For ether, such overcollateralization isn't a problem, because you can package it as an ether derivative and have no counterparty risk... But for a gold collateral you would have a risk that cannot be mitigated in this way and the risk will need to increase the slippage of the asset.
Want do you have in mind?
This is basically the BTC Tether model, except hopefully some anchors will step up that can actually complete an audit without breaking up with their auditors.
I'm not all that convinced that it will be possible to create a stable synthetic blockchain asset without either explicitly pegging to fiat (a la Stellar) or having a big and diverse enough slice of GDP flowing through the system so that speculative activities are a minority of transaction volume.
We figured out this doesn't work in the 19th century.
Reserves don't remove volatility, they just hides it. This is how banks work. And like a bank, a system of keeping "enormous capital" on the sidelines, ready to buy, works 90% of the time. When it doesn't, however, when people fear "enormous" is not enormous enough, they withdraw (i.e. sell), which prompts more selling, until eventually, since "enormous" isn't 100%, the buck breaks and the cards come crashing down.
Also people like to steal the "enormous capital," which is why we have regulations.
If wanting to read from my parent comment: https://news.ycombinator.com/item?id=16851187
Doesn't seem so hot to me, and what happens when the bot runs out of capital?
There are valid arguments to be made against a DAI-like system like capital inefficiency, the appropriateness of the bounded volatility assumptions, and maybe sell spirals, but Preston Byrne's articles include a lot of invalid arguments.
That word doesn't mean what you think it does. Nothing that's happened since it launched is that unexpected.
That is an interesting claim. What were these black swan events which DAI passed with flying colors?
What could kill DAI would be ETH crashing to near zero rapidly.
A black swan event is the one you pointed out about ETH crashing to zero. And there were none yet.
> If the value of ether held as collateral is worth less than the amount
> of Dai it’s supposed to be backing, then Dai would not be worth one dollar
> and the system could collapse.
> Maker combats this by liquidating CDPs and auctioning off the ether inside before the
> value of the ether is less than the amount of Dai it is backing.
The core thing to realize about Maker is that all Maker does is loan Dai against an asset! It's collateralized. Ethereum may be risky to use as collateral, but something like Digix, where tokens are issued one-to-one with gold stored in a vault, means that you are now issuing Dai against a real asset (gold). If you think Maker will fail, you are arguing that the value of the asset backing Maker will fall.
Marketable collateral is an old idea, and suffers certain intrinsic difficulties. One is counterparty risk. Here we have at least three trust points: the place(s) the gold is physically held, Maker and the mechanism by which one holds Digix.
The classic case: Maker lies about the amount of gold in the vault (or steals the gold). Less classic case: the person holding the gold does the same. More realistic case: someone in this chain runs into financial difficulties, or messes up their AML or sanctions compliance program, and has their assets frozen and/or seized by some authority somewhere in the world.
Maker is decentralized, the problem there would be a bug in the smart contract.
And Digix being a failure / scam, that is indeed a failure point.
But what MakerDAO and Dai represents is not some "magic blockchain thinking", it is based on rational economic incentives.
"I want to sell you this gold token. You can't convert it to gold, because the gold was all stolen."
And they've failed, via common mechanisms, for as long. Hence why issuers of marketable collateral are tightly regulated. This "innovation" updates an administrative aspect that always worked fine while leaving the dicier back-end not only untouched, but less regulated than before. It's analogous to rolling back to an un-patched OS, changing the color scheme and calling it progress.
Or the entity having the key to the gold vaults decides to buy themselves a nice tropical island. The real world, it seems, does not expose a blockchain API.
It just happens that Digix gold is issued as an ERC20 token rather than registered with a physical gold exchange.
This is a great writeup on Basecoin, but there's another player in town called Carbon (https://www.carbon.money/). Directly from their whitepaper:
"Carbon utilizes a decentralized schelling point scheme to achieve distributed con- sensus on Carbon’s exchange rate. Every 24 hours, also known as the rebasement period, a schelling point scheme is initiated where nodes submit bids for what they believe the true exchange rate of Carbon to be. Each bid is weighted by a collateral, denominated in Carbon. At the end of the 24 hours, bids are to- taled and the protocol takes a weighted average of the bids. Anyone who bids outside the 25th and 75th percentiles will have their balances slashed. Anyone within the 25th and 75th percentiles receive a normal distribution of the loser’s balances, with the highest reward distribution at 50% and normally diminishing on the right and left respectively"
This has security issues. Unless they own all the participating nodes, then -- as written -- this protocol has several ways that it can be gamed with enough Byzantine players so that the Byzantine parties are w.h.p. in between the 25-75 range and correct nodes are at the edges, which then get their funds slashed. They use several (also broken) mechanisms for contraction and expansion depending on the agreed-upon exchange rate, but supposing they are not broken, the true value of the coin can be gamed which then invalidates these mechanisms. We are truly so deep in mania.
EDIT: Also to add a bit more to Carbon: Hashgraph is also simply a BFT protocol that requires a permissioned setup. If we are going to deploy a smart-contract-enabled stable cryptocurrency on a permissioned network, then it is unclear why this complicated and unproven stack is even needed.
You seem to be making a claim about the space of all possible stablecoin designs, and then then proceeding to demonstrate weaknesses in one particular stablecoin design.
No they're not. Asset-backed Stable coins are not leveraged.
Example 1: He believes Bitcoin is a fractional reserve system.
https://news.ycombinator.com/item?id=15792314
Example 2: He doesn't understand that market participants bring liquidity to exchanges, so he thinks exchanges themselves go bankrupt if market prices decline.
https://news.ycombinator.com/item?id=15792065
I don't have a horse in the Basis Protocol race, but I have little confidence that this author understands the basics.
However, when deciding whether to invest hours reading and discussing his latest arguments, the author's credibility is a factor.
There is no fundamental argument he makes that can be refuted soundly, besides just disagreements in opinion.
The second comment is especially relevant as it deals with pricing, which is the thing this project is about: https://news.ycombinator.com/item?id=15792065
Author doesn't understand that prices are only determined by what people are willing to trade for, rather than them being some external thing that exchanges have to guarantee.
This article is also rather obnoxiously written and there's only one substantive point in the whole thing. However, I think he probably isn't wrong in this case. "BASE bonds" are more like futures or options than bonds, and when the price falls the incentive of being paid in the falling currency probably isn't enough to attract the investment needed to maintain the peg.
The Murray-Gellman Effect
http://www.patheos.com/blogs/geneveith/2011/08/the-murray-ge...
Re: liquidity facilities, I know for a fact certain exchanges have liquidity facilities from banks that they draw down in times of increased withdrawal demand. If market conditions deteriorate quickly enough those facilities will be withdrawn, which could result in the exchange getting caught with its pants down with a large, dollar-denominated obligation to its banks and no means to get the dollars to repay it. That is the stuff of which insolvency is made.
But thanks for summarizing your thinking for those who didn't click through to the source.
Prediction: to prevent a breakdown of stability, the marketing point for these schemes, we'll see, for coins without a centralized bottleneck, stupid collateral rates, and for coins with one, redemption restrictions.
Stablecoins don't set their own monetary policy. The interest rate on a stablecoin will be set by the market, not a central bank. The interest rate here is the escape valve that allows the exchange rate to be fixed. The interest rate floats, the exchange rate remains constant.
Collateral rates have a practical cap, particularly in a time of broader financial crisis. This structure is identical to the "always redeemable" structured products from a few decades ago. There is zero innovation in the financial engineering, just the presentation.
While this is probably going to be an economic disaster based on the redistribution, its merely another alt coin solving a non-existent problem.
The institutional investors seem to recognize the ponzi nature of this; first money in, first money out at several X. The veil of "crypto-economics" around this gives them plausible deniability in engaging in this wealth transfer mechanism.
https://en.wikipedia.org/wiki/Long-Term_Capital_Management
But, what about controlling supply like Basecoin? See SNB peg of 1.2:
https://en.wikipedia.org/wiki/Swiss_franc#2011%E2%80%932014:...
Their peg was broken many times before they removed it completely in 2015.
This exact thing could be said about bitcoin and other cryptos and any other scarcity based investment vessel. It sounds like a horrible flaw but it didn't stop anyone thus far.
The only thing this indicates is that at some point in time baecoin will loose its peg. But it might be decades in the future.
Although I think author is spot on with overall assesment. And failure after loosinh the peg will probably be anything but graceful.
"Normal" cryptocurrencies are way too volatile to actually be a store of value, as of yet, so stable coins really do fill a void and have one of the features of a fiat currency such as the U.S. dollar, that of relative stability.
...(proceeds to use latin)...
His review from 2014 may hold water in a low liquid scenario, but even for a mildly strong market, it's always been a better alternative than, say, the magically backed world of Tether.
He basically says the Bitshares approach is unsound because it requires market forces to be > 0. I agree that you can't have a stable pegged asset when nobody wants to participate in that market. However, if nobody wants to participate, then why do we care about stable pegged assets in the first place.
Bitcoins goes up 5x, you gain from your long and lose from your short. Then, you find an algorithm that balances it out properly, done.
The system would be both long and short the same contract and take profit at a given interval on both sides. When they took a profit, they would reopen a trade on the same side.
Ultimately it was just a mean reversion strategy where one would not close out their losses. So the profit was linear while the losses often became geometric until the time the market came back to where they started the grid.
If you just want to buy both sides and never close either trade, there is no profit just a loss of spread/commission on both legs.
Most of the people who did it looked at their account balance rather than NAV, so they were mostly just abusing leverage until a margin call.
Edit: To be fair, some grids were smarter in their allocation and weighted to be positive to the carry, so at least they would collect interest everyday when the contracts swapped.
27 billion dollars were raised in 1997-1999. Perhaps most of that was wasted. But just one company started in that time period, Google, is now worth 700 billion dollars. From an overall point of view, the dot com investment era was good investment. People just weren't sure which companies were going to be the winners.
The Dotcom craziness gave us hundreds of companies of which only a much smaller amount survived and just a few thrived. But those few more than made up for the total aggregate investment. Likewise with cryptocurrencies. I would not be surprised, in fact I fully expect that most of the crypto coins and tokens out there will fail, investment in them being for nought. But 10-20 years from now, I would be very surprised if the total cryptocurrency industry, consisting of the winners and their descendants, is not orders of magnitude larger than it is today. Just like with the Dotcom era.
There were thousands of IPOs during the 1996-1999 period. Hundreds of billion of dollars were raised.
The impact of the dot-com bubble in terms of actual losses was hundreds of billions or even trillions of dollars.
S&P 500 went from 325.49 in 1991 to 2,714.24 today (8.34x), even inflation 1.85x over that time frame.
It also shows quite a bit of bias when you describe the people involved with the project as 'visionaries' and a vague assurance that aforementioned visionaries are thoughtful.
That said, I agree Preston's writings should be taken with a grain of salt: he's a curmudgeon at heart and provides value to the community from that perspective.
I thought you were arguing from a position of authority but looking at your comment history all I can find is "I'm a blockchain investor at [redacted]" which leads me to a placeholder website. You'll have to come up with something a little more convincing if you want us to trust your judgment.
“Please. Figure out what a government bond is, first. Then we can have a little chat about scalability.”
"electric boogalo"
"But you need to study politics, economics and history to learn things like this, which I understand are not computer science and are therefore unpopular"