10 ms·

MakerDAO’s “DAI” stablecoin is breaking, as predicted

109 points by matthewbauer 9y ago

yusee 9y ago
Tether gets criticized for being fractional, but it's more stable than fancy collateralized derivative products. Cryptocurrency never ceases to amaze me.
- withdavidli 9y ago
  Tether gets criticized for having no released third party audits that they actually hold the hundreds of millions of dollars that is backing their token. They say they have frequent audits on their website, their transparency update that they called the Friedman audit, in the same paragraph states that it does not constitute as an audit[0]. 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/ https://tether.to/announcement-transparency-update/ [1]https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co...
  - andypants 9y ago
    It doesn't even matter if they don't hold the USD to back tether. They make it clear in their ToS that users cannot redeem their USDT for USD. There is no known case of anybody being able to cash out USDT directly from tether.to. It is only possible by exchanging on third party sites or with other users. 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-buying-tethers-is-bitfinex-themselves-f56af29ce60c https://medium.com/@bitfinexed/spoiler-alert-the-institution...
    - withdavidli 9y ago
      would have included that, but tether changed that part of their legal section. it now includes more legalese that i'm interpreting as can redeem, but US residents cannot be customers. no idea of the implications of the latter for people trading it on exchanges. "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."
- wmf 9y ago
  Decentralized trustless systems are always going to be less efficient than centralized ones.
- mtgx 9y ago
  Wait, tether is fractional now? Wasn't one of their big promises that Tether is always backed up 1:1 by the dollar?
  - alphast0rm 9y ago
    I believe you are correct that it's not fractional, their website claims "100% Backed - Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD." [1] The whitepaper abstract also states "issued tokens are fully backed and reserved at all times." [2] [1] https://tether.to/ https://tether.to/ [2] https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf https://tether.to/wp-content/uploads/2016/06/TetherWhitePape...
  - MicahZoltu 9y ago
    Tether claims to be full reserve. The contention people have is that there is little to know proof that they are _actually_ full reserve. Also, there is risk in Tether that some government will seize all of their assets (there is lots of precedence for this).
hal9000xp 9y ago
Actually, for such laughably small trading volume DAI is as stable as mountain: https://coinmarketcap.com/currencies/dai/#markets 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.
- krrrh 9y ago
  > Author of is article is a troll. 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-leave-if-the-crypto-community-doesnt-grow-up-2017-12 http://www.businessinsider.com/ethereum-founder-threatens-to...
  - cowpig 9y ago
    "Author of this article is a troll" != "Author of this article doesn't have a technical background" 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.
  - jerrycabbage 9y ago
    False. He actually has went and reworked troll posts he made in the past. Thats what this guy does. He has no intellectual integrity. His technical background (calling yourself COO doesn't really count as a technical background)
DennisP 9y ago
I'm a bit skeptical of derivative-based stablecoins in general, but Dai dropped briefly and then went right back to about a dollar, currently $1.02. I don't think they ever claimed that their price stabilization mechanisms would work instantaneously.
- Erlich_Bachman 9y ago
  And while it dropped momentarily, it dropped to 70%-80% of the USD. In the world where most other cryptocurrencies move that much in a regular day without anyone breaking a sweat - that seems like a very good deal to me.
onestone 9y ago
FUD. Insufficient liquidity on some exchange might cause the price to fluctuate briefly, of course. But it quickly corrected back to $1.
- tenaciousDaniel 9y ago
  And unless I'm mistaken, the people at Maker never said it was hard-pegged to the dollar. It was a soft peg, so the price could fluctuate here and there, but remain roughly stable.
sna1l 9y ago
It is funny because this guy also fundamentally doesn't understand how Basecoin works. "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-electric-boogaloo/ https://prestonbyrne.com/2017/10/13/basecoin-bitshares-2-ele...
- pjbyrne 9y ago
  > the Basecoin will first go to the Bond holders Only if the price is below $1. You have to read the next paragraph of the blog post to get to that.
- Animats 9y ago
  Well, of course it's easy to ensure that the price doesn't stay above $1. You can make more of them. It's ensuring that the price doesn't stay below $1 that's hard. You have to draw value from some reserve. If that reserve is depleted, you're screwed. All attempts to peg currencies run into that problem.
  - Erlich_Bachman 9y ago
    Would it not be possible to just destroy some of the coins? If they were destroyed for everyone, proportionally to how much they hold, wouldn't that be in interest of everyone? Because it would make the coin itself worth more?
    - jacques_chester 9y ago
      As I see it, you have two options. 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.
oh_sigh 9y ago
If a group wants to peg a coin to the dollar, why don't they just issue coins for $1, put that directly into a savings account, and allow redemption of any coin for $1?
- cowpig 9y ago
  That's called Tether, and its primary problem is that everyone is taking the issuers at their word that the money is going into a savings account, and that they are only issuing it when they receive $1.
  - deleted 9y ago
    [deleted]
- Jasper_ 9y ago
  What's the incentive for you to make your token stable at $1? You can print the tokens, so it's worthless to you. Why not take the $1, spend them on, say, a house, but not tell anyone? This is the situation with Tethers right now.
- zodiac 9y ago
  You have to trust the group that they won't for eg suddenly take the money in the savings account and run off (not honor redemption) some point in the future
  - oh_sigh 9y ago
    Would US corporate structure offer some security for these funds? So it becomes a case of US embezzlement vs trying to make yourself whole via the blockchain?
    - zodiac 9y ago
      Conceivably, but I'm not sure what regulations such a company would have to comply with or even if they can incorporate in the US at all. Eg would they need to be responsible for not letting North Koreans redeem? (probably.) What else? I do remember tethers parent company basically couldn't get any US bank accounts
jerrycabbage 9y ago
In the past, this person trolled Bitshares to make a name for themselves. They selectively cut'n'pasted snippets of the Bitshares forum as some form of evidence in other posts. There is a ton of context there that was removed. A blockchain can give an asset value, but that doesn't mean every market will guarantee those prices. He is now going after the Maker coin. The guy does well SEOing his website with this rubbish but he doesn't seem to understand much outside of that. oh well, no big deal until google/ycombinator point to him as an authority.
MicahZoltu 9y ago
The thing the author seems to be confused about is that when people talk about stable coin they aren't claiming that the market can't be irrational. They are claiming that over a sufficient period of time the coin will trend towards its target. In the case of DAI today, that target is 1 DAI == 1 USD. This means that while the market may irrationally buy/sell DAI for more or less than 1 USD, over time it will trend towards 1 USD. 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.
- pjbyrne 9y ago
  > They are claiming that over a sufficient period of time the coin will trend towards its target 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.
  - zodiac 9y ago
    If there are thin enough markets of course "always maintains purchasing power" is impossible. This is true for USD ad well.
    - pjbyrne 9y ago
      The difference being that USD doesn't pretend to be pegged to anything. My point about MakerDAO is that the development team is claiming the impossible is possible.
3solarmasses 9y ago
How is this mud slinging article so high on hacker news? This guy is just like every other troll who attempts to forge a name for themselves by tearing down other people's hard work.
- moomin 9y ago
  Yeah, I hate security researchers too. They should shut up about TLS and processor vulnerabilities.
- _Nat_ 9y ago
  This does read more like a blogger trying to self-promote than anything else.
kwikiel 9y ago
In this thread cryptocurrency community will rediscover banking and money. 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.
- erikpukinskis 9y ago
  A stablecoin isn't a store of value. It's an instrument for holding pretend Fiat. It's a way for holders to pretend they are the Fed, and say "Now I have USD! You can have it. Just sell it back to someone else eventually because it's pretend." It's an index basically, not an actual commodity. (Except of course in the sense that Everything Is A Commodity in the crypto world.)
  - MicahZoltu 9y ago
    Eh, I wouldn't quite call it an index. While I agree that it isn't _actually_ 1USD (or whatever it is pegged to), it is backed by other assets (in the case of DAI today, it is backed by ETH) and the system is setup such that there should always be more ETH backing the DAI than necessary to make everyone whole.
zodiac 9y ago
Author has misunderstandings of what he's criticizing. From the article I suspect he thought the crash was caused by undercollateralization at first before his friend corrected him. His 15 minute attempt to understand the system didn't include enough time to check the collateralization ratio limits. 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
isubkhankulov 9y ago
The author's main point is that since the token is collaterized by ether, the value of the coin depends on ETH rising in value. The token's creators attempt to solve this by over collateralizing 50% which he considers foolish because it just adds leverage to the system so when losses occur, they are exaggerated.
- orthecreedence 9y ago
  Sure, but they are planning on adding other assets as collateral. ETH is just the first version, the proof of concept. I think the author knows this, though, and chooses to dismiss the project anyway.
decentralised 9y ago
Another misinformed article from Preston Byrne. It's unbelievable how out of touch this guy is!
rebuilder 9y ago
It seems to me that any decentralized stablecoin would break the impossible trinity. [0] 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. [0]:https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
- nora4 9y ago
  Why do you say interest rate is fixed at 0. Isn't the whole bond mechanism supposed to introduce an adaptive interest rate?
arisAlexis 9y ago
introduction bashes ethereum over its price jump and seems to go for tulips explanation. that's where I stopped reading

109 points by matthewbauer 9y ago

Tether gets criticized for being fractional, but it's more stable than fancy collateralized derivative products. Cryptocurrency never ceases to amaze me.

withdavidli 9y ago
Tether gets criticized for having no released third party audits that they actually hold the hundreds of millions of dollars that is backing their token. They say they have frequent audits on their website, their transparency update that they called the Friedman audit, in the same paragraph states that it does not constitute as an audit[0]. 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/ https://tether.to/announcement-transparency-update/ [1]https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co...
- andypants 9y ago
  It doesn't even matter if they don't hold the USD to back tether. They make it clear in their ToS that users cannot redeem their USDT for USD. There is no known case of anybody being able to cash out USDT directly from tether.to. It is only possible by exchanging on third party sites or with other users. 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-buying-tethers-is-bitfinex-themselves-f56af29ce60c https://medium.com/@bitfinexed/spoiler-alert-the-institution...
  - withdavidli 9y ago
    would have included that, but tether changed that part of their legal section. it now includes more legalese that i'm interpreting as can redeem, but US residents cannot be customers. no idea of the implications of the latter for people trading it on exchanges. "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."
wmf 9y ago
Decentralized trustless systems are always going to be less efficient than centralized ones.
mtgx 9y ago
Wait, tether is fractional now? Wasn't one of their big promises that Tether is always backed up 1:1 by the dollar?
- alphast0rm 9y ago
  I believe you are correct that it's not fractional, their website claims "100% Backed - Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD." [1] The whitepaper abstract also states "issued tokens are fully backed and reserved at all times." [2] [1] https://tether.to/ https://tether.to/ [2] https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf https://tether.to/wp-content/uploads/2016/06/TetherWhitePape...
- MicahZoltu 9y ago
  Tether claims to be full reserve. The contention people have is that there is little to know proof that they are _actually_ full reserve. Also, there is risk in Tether that some government will seize all of their assets (there is lots of precedence for this).

hal9000xp 9y ago

Actually, for such laughably small trading volume DAI is as stable as mountain: https://coinmarketcap.com/currencies/dai/#markets 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.

krrrh 9y ago
> Author of is article is a troll. 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-leave-if-the-crypto-community-doesnt-grow-up-2017-12 http://www.businessinsider.com/ethereum-founder-threatens-to...
- cowpig 9y ago
  "Author of this article is a troll" != "Author of this article doesn't have a technical background" 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.
- jerrycabbage 9y ago
  False. He actually has went and reworked troll posts he made in the past. Thats what this guy does. He has no intellectual integrity. His technical background (calling yourself COO doesn't really count as a technical background)

DennisP 9y ago

I'm a bit skeptical of derivative-based stablecoins in general, but Dai dropped briefly and then went right back to about a dollar, currently $1.02. I don't think they ever claimed that their price stabilization mechanisms would work instantaneously.

Erlich_Bachman 9y ago
And while it dropped momentarily, it dropped to 70%-80% of the USD. In the world where most other cryptocurrencies move that much in a regular day without anyone breaking a sweat - that seems like a very good deal to me.

onestone 9y ago

FUD. Insufficient liquidity on some exchange might cause the price to fluctuate briefly, of course. But it quickly corrected back to $1.

tenaciousDaniel 9y ago
And unless I'm mistaken, the people at Maker never said it was hard-pegged to the dollar. It was a soft peg, so the price could fluctuate here and there, but remain roughly stable.

sna1l 9y ago

It is funny because this guy also fundamentally doesn't understand how Basecoin works. "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-electric-boogaloo/ https://prestonbyrne.com/2017/10/13/basecoin-bitshares-2-ele...

pjbyrne 9y ago
> the Basecoin will first go to the Bond holders Only if the price is below $1. You have to read the next paragraph of the blog post to get to that.
Animats 9y ago
Well, of course it's easy to ensure that the price doesn't stay above $1. You can make more of them. It's ensuring that the price doesn't stay below $1 that's hard. You have to draw value from some reserve. If that reserve is depleted, you're screwed. All attempts to peg currencies run into that problem.
- Erlich_Bachman 9y ago
  Would it not be possible to just destroy some of the coins? If they were destroyed for everyone, proportionally to how much they hold, wouldn't that be in interest of everyone? Because it would make the coin itself worth more?
  - jacques_chester 9y ago
    As I see it, you have two options. 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.

oh_sigh 9y ago

If a group wants to peg a coin to the dollar, why don't they just issue coins for $1, put that directly into a savings account, and allow redemption of any coin for $1?

cowpig 9y ago
That's called Tether, and its primary problem is that everyone is taking the issuers at their word that the money is going into a savings account, and that they are only issuing it when they receive $1.
- deleted 9y ago
  [deleted]
Jasper_ 9y ago
What's the incentive for you to make your token stable at $1? You can print the tokens, so it's worthless to you. Why not take the $1, spend them on, say, a house, but not tell anyone? This is the situation with Tethers right now.
zodiac 9y ago
You have to trust the group that they won't for eg suddenly take the money in the savings account and run off (not honor redemption) some point in the future
- oh_sigh 9y ago
  Would US corporate structure offer some security for these funds? So it becomes a case of US embezzlement vs trying to make yourself whole via the blockchain?
  - zodiac 9y ago
    Conceivably, but I'm not sure what regulations such a company would have to comply with or even if they can incorporate in the US at all. Eg would they need to be responsible for not letting North Koreans redeem? (probably.) What else? I do remember tethers parent company basically couldn't get any US bank accounts

jerrycabbage 9y ago

In the past, this person trolled Bitshares to make a name for themselves. They selectively cut'n'pasted snippets of the Bitshares forum as some form of evidence in other posts. There is a ton of context there that was removed. A blockchain can give an asset value, but that doesn't mean every market will guarantee those prices. He is now going after the Maker coin. The guy does well SEOing his website with this rubbish but he doesn't seem to understand much outside of that. oh well, no big deal until google/ycombinator point to him as an authority.

MicahZoltu 9y ago

The thing the author seems to be confused about is that when people talk about stable coin they aren't claiming that the market can't be irrational. They are claiming that over a sufficient period of time the coin will trend towards its target. In the case of DAI today, that target is 1 DAI == 1 USD. This means that while the market may irrationally buy/sell DAI for more or less than 1 USD, over time it will trend towards 1 USD. 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.

pjbyrne 9y ago
> They are claiming that over a sufficient period of time the coin will trend towards its target 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.
- zodiac 9y ago
  If there are thin enough markets of course "always maintains purchasing power" is impossible. This is true for USD ad well.
  - pjbyrne 9y ago
    The difference being that USD doesn't pretend to be pegged to anything. My point about MakerDAO is that the development team is claiming the impossible is possible.

3solarmasses 9y ago

How is this mud slinging article so high on hacker news? This guy is just like every other troll who attempts to forge a name for themselves by tearing down other people's hard work.

moomin 9y ago
Yeah, I hate security researchers too. They should shut up about TLS and processor vulnerabilities.
_Nat_ 9y ago
This does read more like a blogger trying to self-promote than anything else.

kwikiel 9y ago

In this thread cryptocurrency community will rediscover banking and money. 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.

erikpukinskis 9y ago
A stablecoin isn't a store of value. It's an instrument for holding pretend Fiat. It's a way for holders to pretend they are the Fed, and say "Now I have USD! You can have it. Just sell it back to someone else eventually because it's pretend." It's an index basically, not an actual commodity. (Except of course in the sense that Everything Is A Commodity in the crypto world.)
- MicahZoltu 9y ago
  Eh, I wouldn't quite call it an index. While I agree that it isn't _actually_ 1USD (or whatever it is pegged to), it is backed by other assets (in the case of DAI today, it is backed by ETH) and the system is setup such that there should always be more ETH backing the DAI than necessary to make everyone whole.

zodiac 9y ago

Author has misunderstandings of what he's criticizing. From the article I suspect he thought the crash was caused by undercollateralization at first before his friend corrected him. His 15 minute attempt to understand the system didn't include enough time to check the collateralization ratio limits. 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

isubkhankulov 9y ago

The author's main point is that since the token is collaterized by ether, the value of the coin depends on ETH rising in value. The token's creators attempt to solve this by over collateralizing 50% which he considers foolish because it just adds leverage to the system so when losses occur, they are exaggerated.

orthecreedence 9y ago
Sure, but they are planning on adding other assets as collateral. ETH is just the first version, the proof of concept. I think the author knows this, though, and chooses to dismiss the project anyway.

decentralised 9y ago

Another misinformed article from Preston Byrne. It's unbelievable how out of touch this guy is!

rebuilder 9y ago

It seems to me that any decentralized stablecoin would break the impossible trinity. [0] 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. [0]:https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity

nora4 9y ago
Why do you say interest rate is fixed at 0. Isn't the whole bond mechanism supposed to introduce an adaptive interest rate?

arisAlexis 9y ago

introduction bashes ethereum over its price jump and seems to go for tulips explanation. that's where I stopped reading