8 ms·

Stablecoins: A Holy Grail in Digital Currency

59 points by ntomaino 10y ago

TylerE 10y ago
There is absolutely no way this can go terrible wrong.
- jabgrabdthrow 10y ago
  once you acknowledge this as inevitable it frees you to engineer systems that have failure modes dollars are stablecoins
  - wheelerwj 10y ago
    > dollars are stablecoins i get it, dollars are digital. but really thats the only similarity.
mmanfrin 10y ago
I think one of the difficult things is that volatility (and speculators) do play a role in a coin succeeding, as speculators make the 'network effect' problem of altcoins easier to overcome. There's next to zero reason for a random merchant to accept an altcoin unless there are people using it, and unless that coin is known. Speculators and volatility are very big generators of noise that gets the coin noticed and helps bring in actual for-the-sake-of-the-coin holders, which then makes the coin itself more attractive to a merchant (as there are people who wish to use the coin). As much as coin purists may like to speak derisively of speculators, I believe that altcoins would be nowhere without those who have come in to the game to try to earn money off of the volatility.
- ntomaino 10y ago
  I agree with you on volatility playing an important role in bootstrapping the network in the early days of digital currencies like Bitcoin and Ethereum. I think stablecoins will play out differently though and are an important component of attracting new users. I believe decentralized applications will be built that bring mainstream users in, and these users will want a stable store of value to use these applications.
- aakilfernandes 10y ago
  Stable coins still have volatility, however the volatility is pushed to a different set of players (in this case the mkr holders). These mkr holders have a big incentive to promote adoption of dai (the stable coin).
xiphias 10y ago
,,While the volatility of Bitcoin has decreased significantly since it launched in 2009, it is still not a good unit of account or a stable store of value. '' I will gladly accept his BTC from 2009 and give him USD from 2009 for the 2009 price. Sorry, but stability is not holy grail in itself. I would prefer constant supply to it for long term store of value
- daics 10y ago
  Would you accept my BTC from March 1, 2017 too and give me your USD for the March 1, 2017 price?
- gnaritas 10y ago
  Would you sign a 30 year mortgage denominated in BTC? I don't think so, it's neither a good unit of account or store of value. Looking back at the past when you know the previous value is not a good test; looking at the unknown future is.
  - Lerc 10y ago
    The mortgage point illustrates the issue nicely. However, I think if I had a reliable income that was measured and paid out in BTC, then the answer would be yes. That's really the benchmark for when BTC can be used as a proper currency, when people are prepared to set their value in BTC. At the moment it makes a decent transfer mechanism for funds where the quantity is calculated relative to another currency at the time of transfer. If Bitcoin were to become a standard currency it will necessarily have to go though more volatility. Bitcoin's value, should it succeed, is significantly higher than where it is now (conversely, should it fail, lower). When its value does not match its utility it must eventually move. Stability increases utility. These oppossing forces will cause occilations like a plucked string. The occilations should deminish over time as the forces reach equilibrium. The point of balance is anyone's guess right now.
    - gnaritas 10y ago
      > However, I think if I had a reliable income that was measured and paid out in BTC, then the answer would be yes. I think you haven't thought it through if you still think that. 2BTC is currently worth just over 2g in dollars. In 10 years time, it might be worth 10g in dollars or it might be worth 4g in dollars. You'd be crazy to agree to pay 2BTC a month for 30 years with a currency that doesn't have a predictable future value. The dollar has a predictable future value; stability is not about not losing value, it's about predictable value. > That's really the benchmark for when BTC can be used as a proper currency, when people are prepared to set their value in BTC. No, people can do that now, but they do it in relation to exchange rates of more stable currencies. BTC will be usable as a proper currency only when its future value becomes somewhat predictable, predictable enough to denominate long term contracts like mortgages in it without relation to another currencies exchange rate. It'll take decades to reach that point. A currency without a reasonable long term predictable value, isn't a currency, it's a commodity.
modeless 10y ago
It's not decentralized if there's a trusted oracle. So many schemes in the "blockchain" space fail to understand the core problem Bitcoin solves. Bitcoin solves trust. You can transact Bitcoin with anybody and you don't have to trust a single person, even the sending party. If someone sends you Bitcoins and the transaction is 6+ confirmations deep in the blockchain, you can be certain that you own those Bitcoins and nobody else can take them from you without your private keys. Not a bank, not a government, not a miner, not a "core dev", not a full node operator. The only necessary assumption is that 51% of the hash power is not conspiring against you. Whenever you see a new "blockchain" scheme coming out, ask yourself who you need to trust for it to work. If the answer is not "nobody", then it is not worth any more of your time.
- ntomaino 10y ago
  There is not a trusted oracle
  - modeless 10y ago
    "Oracles are trusted external actors tasked with providing continuous price data" https://github.com/makerdao/docs/blob/master/Dai.md https://github.com/makerdao/docs/blob/master/Dai.md
  - csomar 10y ago
    How can this work if there is no Oracle? Think about it, the price of USD/ETH has to be retrieved from somewhere. It's not in the blockchain, so it must provided in an Oracle.
    - ntomaino 10y ago
      There is not one trusted oracle. The oracles are determined by the MKR holders, and MKR holders can easily replace oracles if they act badly. MKR ownership is decentralized, hence I don't think it's accurate to say there's one trusted oracle.
    - kobeya 10y ago
daics 10y ago
A better whitepaper than the one linked in the article, https://github.com/makerdao/docs/blob/master/Dai.md https://github.com/makerdao/docs/blob/master/Dai.md
csomar 10y ago
> The tokens have been continuously sold off in small batches by the Dai Foundation. Currently about 55% of the total supply has been distributed, with the foundation still having another 45% for future fundraising. And here where the "Scam" alarms go full retard, basically panicking the whole building I'm living in. The concept is yet to be finalized, let alone functioning and yet these guys started selling "tokens" a la "DAO". I wonder when regulators are going to strongly hammer the ICO (or the crypto equivalent of IPO) by a 15 year of jail and catching bad jokers inland and overseas.
- daics 10y ago
  They must be really good if they could "Scam" reputed VC funds who are also part of the 55%.
- empath75 10y ago
  As soon as I saw 'dao', I realized I was wasting my time.
SirensOfTitan 10y ago
I don't see stability as a goal right now with leading cryptocurrencies (ETH, BTC). In fact, promoting cryptocurrency as a storage of value right now seems off too: one day, not today. More people will store more wealth in cryptocurrencies as the number of applications grow. Being able to pay for my Chipotle, or renew domain names, or buy stock in companies, or run a website all make me more willing to keep more of my wealth in ETH. Eventually stability will come as the relative utility of a currency pushes volume up. The last thing I want is stability as a believer in the Ethereum platform. I want the price of Ether to go up pursuant with the growing utilities Dapps provide. In the interim, solutions like Bitpay that pay merchants in USD over BTC are brilliant. They allow merchants to buy into cryptocurrency without accepting the volatility risk until it's low enough.
cortesoft 10y ago
So this is trying to create a currency that is democratically controlled by the "MKR" holders - I don't really understand how this is fundamentally different than something like the US dollar. Sure, the central bank controls a lot of the system, but they are also 'democratically controlled' by our ACTUAL democracy. Now, I am sure there will be an argument made that the central bank is beholden to special interests, who use their wealth and power to control our democracy... but won't that same thing happen with these 'MKRs'? The wealthy and powerful will have more control over them, and will certainly use that power and control in their own benefit. It seems like a common flaw in all of these 'alternative' systems people create to replace large scale institutions; they might seem different than what we have now, but when you scale it up to match the size of the current system they are aiming to replace, you end up seeing that the systems are nearly identical in practice.
deleted 10y ago
[deleted]
nickpsecurity 10y ago
I think it was Ven that was the concept I liked where you build a currency on a bunch of commodities targeted toward stability. Clive Robinson on Schneier's blog had previously described that as the best solution then I stumbled on Ven. http://www.popsci.com/worlds-most-stable-currency-is-backed-by-carbon http://www.popsci.com/worlds-most-stable-currency-is-backed-... So, my scheme was to put something like Ven in a sane country such as Switzerland under a nonprofit/foundation with strict rules aimed at preserving stability, security, innovation of ecosystem, and cap on admin overhead. If that works out pretty well, we can try a decentralized version of the same thing. Meanwhile, centralized can already work very well. Just eliminate as many incentives to mess it up as you possibly can to make it better. The big brains haven't explored this option enough since they want a crypto/algorithmic solution to hard problems instead of using the well-understood systems of law, accounting, and safe investments. There's also a strong preference for decentralize stuff highly-likely to fail vs centralized stuff way better than what we have. I think that's ideological or even youth-related.

59 points by ntomaino 10y ago

TylerE 10y ago

There is absolutely no way this can go terrible wrong.

jabgrabdthrow 10y ago
once you acknowledge this as inevitable it frees you to engineer systems that have failure modes dollars are stablecoins
- wheelerwj 10y ago
  > dollars are stablecoins i get it, dollars are digital. but really thats the only similarity.

mmanfrin 10y ago

I think one of the difficult things is that volatility (and speculators) do play a role in a coin succeeding, as speculators make the 'network effect' problem of altcoins easier to overcome. There's next to zero reason for a random merchant to accept an altcoin unless there are people using it, and unless that coin is known. Speculators and volatility are very big generators of noise that gets the coin noticed and helps bring in actual for-the-sake-of-the-coin holders, which then makes the coin itself more attractive to a merchant (as there are people who wish to use the coin). As much as coin purists may like to speak derisively of speculators, I believe that altcoins would be nowhere without those who have come in to the game to try to earn money off of the volatility.

ntomaino 10y ago
I agree with you on volatility playing an important role in bootstrapping the network in the early days of digital currencies like Bitcoin and Ethereum. I think stablecoins will play out differently though and are an important component of attracting new users. I believe decentralized applications will be built that bring mainstream users in, and these users will want a stable store of value to use these applications.
aakilfernandes 10y ago
Stable coins still have volatility, however the volatility is pushed to a different set of players (in this case the mkr holders). These mkr holders have a big incentive to promote adoption of dai (the stable coin).

xiphias 10y ago

,,While the volatility of Bitcoin has decreased significantly since it launched in 2009, it is still not a good unit of account or a stable store of value. '' I will gladly accept his BTC from 2009 and give him USD from 2009 for the 2009 price. Sorry, but stability is not holy grail in itself. I would prefer constant supply to it for long term store of value

daics 10y ago
Would you accept my BTC from March 1, 2017 too and give me your USD for the March 1, 2017 price?
gnaritas 10y ago
Would you sign a 30 year mortgage denominated in BTC? I don't think so, it's neither a good unit of account or store of value. Looking back at the past when you know the previous value is not a good test; looking at the unknown future is.
- Lerc 10y ago
  The mortgage point illustrates the issue nicely. However, I think if I had a reliable income that was measured and paid out in BTC, then the answer would be yes. That's really the benchmark for when BTC can be used as a proper currency, when people are prepared to set their value in BTC. At the moment it makes a decent transfer mechanism for funds where the quantity is calculated relative to another currency at the time of transfer. If Bitcoin were to become a standard currency it will necessarily have to go though more volatility. Bitcoin's value, should it succeed, is significantly higher than where it is now (conversely, should it fail, lower). When its value does not match its utility it must eventually move. Stability increases utility. These oppossing forces will cause occilations like a plucked string. The occilations should deminish over time as the forces reach equilibrium. The point of balance is anyone's guess right now.
  - gnaritas 10y ago
    > However, I think if I had a reliable income that was measured and paid out in BTC, then the answer would be yes. I think you haven't thought it through if you still think that. 2BTC is currently worth just over 2g in dollars. In 10 years time, it might be worth 10g in dollars or it might be worth 4g in dollars. You'd be crazy to agree to pay 2BTC a month for 30 years with a currency that doesn't have a predictable future value. The dollar has a predictable future value; stability is not about not losing value, it's about predictable value. > That's really the benchmark for when BTC can be used as a proper currency, when people are prepared to set their value in BTC. No, people can do that now, but they do it in relation to exchange rates of more stable currencies. BTC will be usable as a proper currency only when its future value becomes somewhat predictable, predictable enough to denominate long term contracts like mortgages in it without relation to another currencies exchange rate. It'll take decades to reach that point. A currency without a reasonable long term predictable value, isn't a currency, it's a commodity.

modeless 10y ago

It's not decentralized if there's a trusted oracle. So many schemes in the "blockchain" space fail to understand the core problem Bitcoin solves. Bitcoin solves trust. You can transact Bitcoin with anybody and you don't have to trust a single person, even the sending party. If someone sends you Bitcoins and the transaction is 6+ confirmations deep in the blockchain, you can be certain that you own those Bitcoins and nobody else can take them from you without your private keys. Not a bank, not a government, not a miner, not a "core dev", not a full node operator. The only necessary assumption is that 51% of the hash power is not conspiring against you. Whenever you see a new "blockchain" scheme coming out, ask yourself who you need to trust for it to work. If the answer is not "nobody", then it is not worth any more of your time.

ntomaino 10y ago
There is not a trusted oracle
- modeless 10y ago
  "Oracles are trusted external actors tasked with providing continuous price data" https://github.com/makerdao/docs/blob/master/Dai.md https://github.com/makerdao/docs/blob/master/Dai.md
- csomar 10y ago
  How can this work if there is no Oracle? Think about it, the price of USD/ETH has to be retrieved from somewhere. It's not in the blockchain, so it must provided in an Oracle.
  - ntomaino 10y ago
    There is not one trusted oracle. The oracles are determined by the MKR holders, and MKR holders can easily replace oracles if they act badly. MKR ownership is decentralized, hence I don't think it's accurate to say there's one trusted oracle.
  - kobeya 10y ago

daics 10y ago

A better whitepaper than the one linked in the article, https://github.com/makerdao/docs/blob/master/Dai.md https://github.com/makerdao/docs/blob/master/Dai.md

csomar 10y ago

> The tokens have been continuously sold off in small batches by the Dai Foundation. Currently about 55% of the total supply has been distributed, with the foundation still having another 45% for future fundraising. And here where the "Scam" alarms go full retard, basically panicking the whole building I'm living in. The concept is yet to be finalized, let alone functioning and yet these guys started selling "tokens" a la "DAO". I wonder when regulators are going to strongly hammer the ICO (or the crypto equivalent of IPO) by a 15 year of jail and catching bad jokers inland and overseas.

daics 10y ago
They must be really good if they could "Scam" reputed VC funds who are also part of the 55%.
empath75 10y ago
As soon as I saw 'dao', I realized I was wasting my time.

SirensOfTitan 10y ago

I don't see stability as a goal right now with leading cryptocurrencies (ETH, BTC). In fact, promoting cryptocurrency as a storage of value right now seems off too: one day, not today. More people will store more wealth in cryptocurrencies as the number of applications grow. Being able to pay for my Chipotle, or renew domain names, or buy stock in companies, or run a website all make me more willing to keep more of my wealth in ETH. Eventually stability will come as the relative utility of a currency pushes volume up. The last thing I want is stability as a believer in the Ethereum platform. I want the price of Ether to go up pursuant with the growing utilities Dapps provide. In the interim, solutions like Bitpay that pay merchants in USD over BTC are brilliant. They allow merchants to buy into cryptocurrency without accepting the volatility risk until it's low enough.

cortesoft 10y ago

So this is trying to create a currency that is democratically controlled by the "MKR" holders - I don't really understand how this is fundamentally different than something like the US dollar. Sure, the central bank controls a lot of the system, but they are also 'democratically controlled' by our ACTUAL democracy. Now, I am sure there will be an argument made that the central bank is beholden to special interests, who use their wealth and power to control our democracy... but won't that same thing happen with these 'MKRs'? The wealthy and powerful will have more control over them, and will certainly use that power and control in their own benefit. It seems like a common flaw in all of these 'alternative' systems people create to replace large scale institutions; they might seem different than what we have now, but when you scale it up to match the size of the current system they are aiming to replace, you end up seeing that the systems are nearly identical in practice.

deleted 10y ago

[deleted]

nickpsecurity 10y ago

I think it was Ven that was the concept I liked where you build a currency on a bunch of commodities targeted toward stability. Clive Robinson on Schneier's blog had previously described that as the best solution then I stumbled on Ven. http://www.popsci.com/worlds-most-stable-currency-is-backed-by-carbon http://www.popsci.com/worlds-most-stable-currency-is-backed-... So, my scheme was to put something like Ven in a sane country such as Switzerland under a nonprofit/foundation with strict rules aimed at preserving stability, security, innovation of ecosystem, and cap on admin overhead. If that works out pretty well, we can try a decentralized version of the same thing. Meanwhile, centralized can already work very well. Just eliminate as many incentives to mess it up as you possibly can to make it better. The big brains haven't explored this option enough since they want a crypto/algorithmic solution to hard problems instead of using the well-understood systems of law, accounting, and safe investments. There's also a strong preference for decentralize stuff highly-likely to fail vs centralized stuff way better than what we have. I think that's ideological or even youth-related.