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Comment by chrisco255 | Hacker News Reader

Maker DAI is superior in every way to Basis, and it's been in production for over a year at this point...surviving all the wild price swings along the way.

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Isn't most of DAI stability artificial through bots because it is just a cryptocurrency-collateralised derivative contract which uses ETH for the collateral?

It will eventually fail too. When ETH collapses they won't be able to hold the stability for long.

What do you mean by ETH collapsing? You mean going to 0? ETH has lost more than 90% of its value in 2018 but DAI remained at $1 which seems pretty stable

The only external input to Maker/DAI is a collection of ETH price feeds. The rest is an open market. I'm sure some market participants use bots, but that's true in every financial market these days.

I was skeptical of Maker at first, and they are backed by ETH, but they've stayed within 1% of their target price while ETH dropped 94%, so it seems to be working pretty well so far. They're working on a multi-collateral version.

>they've stayed within 1% of their target price

I'm not sure which charts you are following, but as recently as yesterday they were 5% off target: https://coinmarketcap.com/currencies/dai/#charts

Maker DAI is one of the asset backed stablecoins (in this case the asset is still in crypto - there are other stablecoins where the asset is outside of the crypto sphere). What made Basis really interesting is that it was purely algorithmic, i.e. it was entirely self contained with its own monetary policy issuing in effect both stocks and bonds.

DAI is purely algorithmic as well. It's all smart contract based issuance. But it is asset backed rather than some fiat system.

Are you saying Basis is fiat?

I don't think you can call DAI purely algorithmic because it needs oracles to work.

I think chrisco255 is saying Basis and DAI aren't one of the stablecoins backed by actual fiat. I believe there are 4 sorts of stablecoins:

- Ones backed by fiat, or allegedly backed by fiat[0].

- Ones backed by commodities, e.g. the organisation that issues the UK's coinage (The Royal Mint) was looking at issuing RMG tokens backed by their gold reserves[1] (they've since stopped work on this even though it is still listed on their web site).

- Ones backed by other crypto assets, e.g. Maker DAO's DAI depends on ETH as its collateral.

- Ones not backed by any external asset outside of its own system, e.g. Basis.

The algorithms for the last class are particularly interesting in that they essentially have to model what a central bank does. I'd be interested to find out why Basis has failed. Is it just that they were unable to comply with US regulations? Or is it that the algorithm itself wasn't viable?

[0] https://news.ycombinator.com/item?id=18493093

[1] https://www.royalmint.com/invest/bullion/digital-gold/

I would argue that it was a fiat system modeled somewhat closely to the U.S. monetary system.

Point is that DAI has economic incentives in code to keep its price in check.

DAI is backed by ETH. that's the critical difference here. You can't have a stable coin backed by itself, that's a perpetual motion machine

Do you know what the use case for holding stable coins is? I haven't figured out why anyone we ould need them.

Anything other than speculation benefits from stable value.

Yeah, for transactional use cases. We could place stable DAI in a smart contract and be sure that it's value was going to not change (except minimally) against the dollar. We also get all the benefits of block chain infrastructure (borderless, cheap for even large amounts, etc). We can program DAI in a way that isn't possible with USD.

People who'd want to spend cryptocurrency might want cryptocurrency's advantages, without its volatility.

People who want to invest/speculate in cryptocurrency will often want some proportion of their portfolio value to be as stable as USD. But, actually holding true USD at exchanges/banks could be more complicated, requiring interfacing with legacy banking systems & regulations. A stablecoin allows USD value to be handled at exchanges (and transferred) in manners almost wholly analogous to other cryptocurrencies.

Except these stable coins doesn't solve the core problem cryptocurrencies do: uncensorable transactions. Tether for example has the ability to freeze addresses. They can also freely manipulate the coin supply (a necessary feature for stable coins) which goes against the decentralized idea of cryptocurrencies.

AFAIK Basis and DAI are both trustless; not everything is as bad as Tether.

DAI has some sort of emergency provision for freezing the entire chain and returning stakes, controlled by MKR token holders, whoever they are.

It has a global settlement (which more or less liquidates all collateral). It doesn't freeze the ETH blockchain that DAI are traded on. DAI could be returned to the main contract for X amount of ETH based on the spot price of ETH when the global settlement is executed. But DAI could still be traded around independently of the global settlement. It's value might have slipped as a result, however, based on whatever ETH became worth following the settlement. The market would still determine that price, however.

Writing a contract in stable coin denomination fixes your crypto platform costs in non-crypto terms, and enables things like Ethereum contracts to transact in dollars.

This simplifies, eg, a dApp hiring staff: you hire them for stable coins, which they cash out at various certified brokers.

Most cryptocurrencies are used for speculation. If you want to sell high, buy low you need something to trade against.

Many exchanges, especially those that offer any type of contracts trading, are not under normal financial regulation and to the extent they even offer fiat denominated orderbooks there is a risk premium attached to it. When withdrawals are not guaranteed by by any type of regulatory body people could just as well trade pretend-dollars, and that's basically what stablecoins are.

Be cautious out there. At least these holders got their money back.

there's no reason to hold any stablecoin other than speculation (is it really really worth an equivalent fiat unit) or temporal liquidity. This whole concept of a stablecoin is fallacy unless you think it might serve some liquidity or velocity purpose.

What???? What if you want to have a product that normal people can use?

Use dollars

In the idealistic sense a couple come to mind:

1. A base "asset" to hold with nearly instant ability to move, ideally without changing value relative to the reporting currency.

2. Moving assets around between exchanges/markets/wallets outside banking hours (9a-5p M-F).

3. Banking one-self (no intermediary ever required), the owner can determine the appropriate security procedures for their assets (granted this may well be not on target of the use-case...)

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