7 ms·

Basecoin, aka the Basis Protocol

115 points by pjbyrne 8y ago

lacker 8y ago
One thing that jumped out at me was that the article compares modern cryptocurrency to the dot com situation in 1997-1999, and is using it to criticize cryptocurrency. 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.
- garmaine 8y ago
  Also, Amazon.com. That's over a trillion dollars of value between them. 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.
- pdog 8y ago
  Public investors lost much more than $27B. (Private investors made money.) There were thousands of IPOs during the 1996-1999 period. Hundreds of billion of dollars were raised. The impact of the dot-com bubble in terms of actual losses was hundreds of billions or even trillions of dollars.
  - Retric 8y ago
    Net losses are different from nominal losses. If someone buys at 10, the stock hits 15$ then drops to 5$, they lost 5$ a share not 10$ a share. We are easily talking about 100's of billions in losses, but 1.7 trillion is an over estimate.
    - deleted 8y ago
      [deleted]
- Retric 8y ago
  Vastly more than 27 billion was pushed into the dot com bubble. You need to look at both private equity and public stock purchases over a significantly longer time frame of around 1991-1999. Further, you would expect gains over 20 years from such investments. S&P 500 went from 325.49 in 1991 to 2,714.24 today (8.34x), even inflation 1.85x over that time frame.
hisabness 8y ago
Preston takes an insulting tone towards the basis team. Fine to critique, but assumes the visionaries of this project are uneducated, or haven't given things proper thought. I assure you they are thoughtful...
- ajiang 8y ago
  I think perhaps the right way to approach critique of the OP is to provide citations or proof against the author's claims. It isn't a productive conversation to take offense at the general tone. 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.
- drcode 8y ago
  The problem is that synthetic blockchain assets are an idea where we already have a significant history of competent, serious people misjudging the tech and making unrealistic promises. Hence, you can't just argue away problems by claiming the devs are "competent and serious". 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.
- nebulous1 8y ago
  If they actually wrote "one day, Basecoin might become so widely used as a medium of exchange that it actually starts to displace the USD in transaction volume" then they deserve whatever is thrown at them
  - hisabness 8y ago
    since everyone in 1792 believed the Buttonwood Agreement would turn into the New York Stock Exchange...
- simias 8y ago
  >I assure you they are thoughtful... 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.
chrisco255 8y ago
MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months. They're in the process of adding more assets to back the currency to improve stability. The supply is capped by a debt ceiling. There are sound principles behind the currency, and it being an ERC20 token, it's got all the advantages of being pluggable into the ETH ecosystem. 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.
- klochner 8y ago
  From the DAI site: > 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. Note combats not prevents, it will go to zero with probability 1 [0]. [0] https://en.wikipedia.org/wiki/Gambler%27s_ruin https://en.wikipedia.org/wiki/Gambler%27s_ruin
- ajiang 8y ago
  I think the defense of "nothing has happened yet" is a tough one to back, in particular given that during the build up to the last recession, 1) collateralized debt was claimed by wall street to be "as good as cash" and 2) the housing market would "always go up". It works until it doesn't.
  - chrisco255 8y ago
    DAI is set up so that it's not dependent on ETH always going up. People create DAI by locking up ETH (or in the future, other assets) as collateral. Currently for ETH, you have to lock up 150% of the value that you take out in DAI (but you can collateralize higher than that if you like). If the price of ETH falls below a certain value, then a position can be liquidated automatically by the system, to cover the position. 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.
wyas 8y ago
Stablecoins are fundamentally broken and unsound. Ignoring the tech-stack that achieves price stability, and looking at them purely economically, the math simply breaks down. This is a great writeup on Basecoin, but there's another player in town called Carbon (https://www.carbon.money/ 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.
- zodiac 8y ago
  > Stablecoins are fundamentally broken and unsound. Ignoring the tech-stack that achieves price stability, and looking at them purely economically, the math simply breaks down. 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.
  - deleted 8y ago
    [deleted]
mkirklions 8y ago
After being shilled on /r/cryptocurrency, I dont trust any alt coin now. While this is probably going to be an economic disaster based on the redistribution, its merely another alt coin solving a non-existent problem.
- hackme1234 8y ago
  >While this is probably going to be an economic disaster based on the redistribution, its merely another alt coin solving a non-existent problem. There's plenty of demand for a stable coin so that you can trade crypto easily or save money in a stable manner.
wellboy 8y ago
Why can't you simply make a stable coin where you bet long and short at the same time? 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.
- drcode 8y ago
  This scheme will always have one of these problems: (1) people will be required to lock a large amount of collateral to cover their bet that is uneconomical or (2) the peg will break during extreme fluctuations.
  - wellboy 8y ago
    Why is that? If BTC goes 20x, then the long position liquidates, but so does the 20x short position.
    - justrobert 8y ago
      If you are interested in this, people tried the long/short strategy in currencies (forex) and called it a grid trade. 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.
- deleted 8y ago
  [deleted]
mempko 8y ago
This is good but the author makes a common mistake referencing fractional reserve banking. Fractional reserve banking really isn't a thing. Most central banks in the world don't have reserve requirements. Even in the USA, only a small subset of debt requires reserves. And even then the reserves can be met in 30 days.
natch 8y ago
>In English: ...(proceeds to use latin)...
jjallen 8y ago
The crazy thing about stable-coins is that they're really trying to replace/disrupt fiat money, more so than normal cryptocurrencies like Bitcoin or Ethereum. "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.
nebulous1 8y ago
Regarding Tether, you can be rightly suspicious but it's not just the exchange run by its corporate parent that you can trade it for a dollar on.
mattbeckman 8y ago
This guy doesn't give Bitshares enough credit. 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.
- monochromatic 8y ago
  Damning with faint praise.
  - mattbeckman 8y ago
    Not really. 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.
    - monochromatic 8y ago
      Oh I just meant that when you said "it's always been a better alternative than, say, the magically backed world of Tether," it was pretty faint praise.
JumpCrisscross 8y ago
Cryptocurrencies have reached the 1980s, with "stable coins" attempting to achieve the "impossible trinity" [1] of a fixed foreign exchange rate (i.e. "stable"), free capital movement (i.e. liquidity) and an independent monetary policy (i.e. reasonable collateral rates). 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. [1] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
- darawk 8y ago
  > The formal model underlying the hypothesis is the uncovered Interest Rate Parity condition which states that in absence of a risk premium, arbitrage will ensure that the depreciation or appreciation of a country's currency vis-à-vis another will be equal to the nominal interest rate differential between them. Since under a peg, i.e. a fixed exchange rate, short of devaluation or abandonment of the fixed rate, the model implies that the two countries' nominal interest rates will be equalized. An example of which was the consequential devaluation of the Peso, that was pegged to the US dollar at 0.08, eventually depreciating by 46%. 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.
  - JumpCrisscross 8y ago
    > 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.
hcmag 8y ago
I've worked with these founders over at Google. They were normal, middle-of-the-road SWEs working on some (fairly boring) DoubleClick teams, one of which eventually shut down. In a matter of a year, with no revenue, code, product, or customers, I can't believe they've raised over $100m. 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.
- samfisher83 8y ago
  They must be good at selling if they can convince people to get 100+ million with no "revenue, code, product, or customers." You can't hate on someone for making it.
  - gitgud 8y ago
    In other words, "you gotta respect the hustle"
- hashsalt 8y ago
  A16Z also funded 21.co's earlier iteration when they made terrible mining rigs. The cynic in me says they believe the instant liquidity + their brand name will paper over all cracks.
- aeries 8y ago
  I can't speak for their coding abilities (which are a poor proxy for company founding abilities anyways), but Nader and Lawrence are both very sharp guys.
- solean 8y ago
  It's pretty elitist to think that you can never accomplish anything worthwhile just because you were only a low level employee at Google, which by the way, is a position most engineers dream of.
thisisit 8y ago
Something is unstable because market wants it to be unstable. There are no mathematically underpinnings which can stop them from a long time. This is a fallacy which cryptocurrency groups need to wake up from. Sure it looks like math can solve this problem and many have over the years relied on solid math only to fail. See: https://en.wikipedia.org/wiki/Long-Term_Capital_Management 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:_Big_movements_and_capping https://en.wikipedia.org/wiki/Swiss_franc#2011%E2%80%932014:... Their peg was broken many times before they removed it completely in 2015.
- deleted 8y ago
  [deleted]
abhv 8y ago
The last bondholders will be left holding worthless obligations when no new buyers are there to create demand. 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.
panarky 8y ago
Before you read this 2000-word treatise, know that the author, Preston Byrne, has a history of misunderstanding fundamental concepts about money and markets. Example 1: He believes Bitcoin is a fractional reserve system. https://news.ycombinator.com/item?id=15792314 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 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.
- wyas 8y ago
  Attacks on the author aren't the best thing in general (https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%27s_Hierarchy_of_Disagreement-en.svg https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%2...)
  - panarky 8y ago
    I agree that ad hominem attacks are generally counterproductive when your goal is to evaluate an argument. However, when deciding whether to invest hours reading and discussing his latest arguments, the author's credibility is a factor.
    - wyas 8y ago
      Preston has some beliefs that don't make a lot of sense, I agree. But his ability to reason about technical facts is not impeded. There is no fundamental argument he makes that can be refuted soundly, besides just disagreements in opinion.
  - thinkloop 8y ago
    Generally agree, but those are pretty damning comments showing a weak understanding of money mechanics, and this project is fundamentally about money mechanics. 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 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.
scotty79 8y ago
> The money to keep the machine going must come from somewhere, and in this case that somewhere is a new investor willing to subsidize profit-taking by earlier participants in the scheme by committing risk capital of his own. 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.

115 points by pjbyrne 8y ago

One thing that jumped out at me was that the article compares modern cryptocurrency to the dot com situation in 1997-1999, and is using it to criticize cryptocurrency. 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.

garmaine 8y ago
Also, Amazon.com. That's over a trillion dollars of value between them. 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.
pdog 8y ago
Public investors lost much more than $27B. (Private investors made money.) There were thousands of IPOs during the 1996-1999 period. Hundreds of billion of dollars were raised. The impact of the dot-com bubble in terms of actual losses was hundreds of billions or even trillions of dollars.
- Retric 8y ago
  Net losses are different from nominal losses. If someone buys at 10, the stock hits 15$ then drops to 5$, they lost 5$ a share not 10$ a share. We are easily talking about 100's of billions in losses, but 1.7 trillion is an over estimate.
  - deleted 8y ago
    [deleted]
Retric 8y ago
Vastly more than 27 billion was pushed into the dot com bubble. You need to look at both private equity and public stock purchases over a significantly longer time frame of around 1991-1999. Further, you would expect gains over 20 years from such investments. S&P 500 went from 325.49 in 1991 to 2,714.24 today (8.34x), even inflation 1.85x over that time frame.

hisabness 8y ago

Preston takes an insulting tone towards the basis team. Fine to critique, but assumes the visionaries of this project are uneducated, or haven't given things proper thought. I assure you they are thoughtful...

ajiang 8y ago
I think perhaps the right way to approach critique of the OP is to provide citations or proof against the author's claims. It isn't a productive conversation to take offense at the general tone. 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.
drcode 8y ago
The problem is that synthetic blockchain assets are an idea where we already have a significant history of competent, serious people misjudging the tech and making unrealistic promises. Hence, you can't just argue away problems by claiming the devs are "competent and serious". 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.
nebulous1 8y ago
If they actually wrote "one day, Basecoin might become so widely used as a medium of exchange that it actually starts to displace the USD in transaction volume" then they deserve whatever is thrown at them
- hisabness 8y ago
  since everyone in 1792 believed the Buttonwood Agreement would turn into the New York Stock Exchange...
simias 8y ago
>I assure you they are thoughtful... 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.

chrisco255 8y ago

MakerDAO's DAI coin (currently collateralized by ETH) has already proven quite stable in the face of several black swan events and the price of Ethereum crashing nearly 70% over the past couple of months. They're in the process of adding more assets to back the currency to improve stability. The supply is capped by a debt ceiling. There are sound principles behind the currency, and it being an ERC20 token, it's got all the advantages of being pluggable into the ETH ecosystem. 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.

klochner 8y ago
From the DAI site: > 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. Note combats not prevents, it will go to zero with probability 1 [0]. [0] https://en.wikipedia.org/wiki/Gambler%27s_ruin https://en.wikipedia.org/wiki/Gambler%27s_ruin
ajiang 8y ago
I think the defense of "nothing has happened yet" is a tough one to back, in particular given that during the build up to the last recession, 1) collateralized debt was claimed by wall street to be "as good as cash" and 2) the housing market would "always go up". It works until it doesn't.
- chrisco255 8y ago
  DAI is set up so that it's not dependent on ETH always going up. People create DAI by locking up ETH (or in the future, other assets) as collateral. Currently for ETH, you have to lock up 150% of the value that you take out in DAI (but you can collateralize higher than that if you like). If the price of ETH falls below a certain value, then a position can be liquidated automatically by the system, to cover the position. 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.

wyas 8y ago

Stablecoins are fundamentally broken and unsound. Ignoring the tech-stack that achieves price stability, and looking at them purely economically, the math simply breaks down. This is a great writeup on Basecoin, but there's another player in town called Carbon (https://www.carbon.money/ 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.

zodiac 8y ago
> Stablecoins are fundamentally broken and unsound. Ignoring the tech-stack that achieves price stability, and looking at them purely economically, the math simply breaks down. 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.
- deleted 8y ago
  [deleted]

mkirklions 8y ago

After being shilled on /r/cryptocurrency, I dont trust any alt coin now. While this is probably going to be an economic disaster based on the redistribution, its merely another alt coin solving a non-existent problem.

hackme1234 8y ago
>While this is probably going to be an economic disaster based on the redistribution, its merely another alt coin solving a non-existent problem. There's plenty of demand for a stable coin so that you can trade crypto easily or save money in a stable manner.

wellboy 8y ago

Why can't you simply make a stable coin where you bet long and short at the same time? 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.

drcode 8y ago
This scheme will always have one of these problems: (1) people will be required to lock a large amount of collateral to cover their bet that is uneconomical or (2) the peg will break during extreme fluctuations.
- wellboy 8y ago
  Why is that? If BTC goes 20x, then the long position liquidates, but so does the 20x short position.
  - justrobert 8y ago
    If you are interested in this, people tried the long/short strategy in currencies (forex) and called it a grid trade. 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.
deleted 8y ago
[deleted]

mempko 8y ago

This is good but the author makes a common mistake referencing fractional reserve banking. Fractional reserve banking really isn't a thing. Most central banks in the world don't have reserve requirements. Even in the USA, only a small subset of debt requires reserves. And even then the reserves can be met in 30 days.

natch 8y ago

>In English: ...(proceeds to use latin)...

jjallen 8y ago

The crazy thing about stable-coins is that they're really trying to replace/disrupt fiat money, more so than normal cryptocurrencies like Bitcoin or Ethereum. "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.

nebulous1 8y ago

Regarding Tether, you can be rightly suspicious but it's not just the exchange run by its corporate parent that you can trade it for a dollar on.

mattbeckman 8y ago

This guy doesn't give Bitshares enough credit. 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.

monochromatic 8y ago
Damning with faint praise.
- mattbeckman 8y ago
  Not really. 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.
  - monochromatic 8y ago
    Oh I just meant that when you said "it's always been a better alternative than, say, the magically backed world of Tether," it was pretty faint praise.

JumpCrisscross 8y ago

Cryptocurrencies have reached the 1980s, with "stable coins" attempting to achieve the "impossible trinity" [1] of a fixed foreign exchange rate (i.e. "stable"), free capital movement (i.e. liquidity) and an independent monetary policy (i.e. reasonable collateral rates). 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. [1] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity

darawk 8y ago
> The formal model underlying the hypothesis is the uncovered Interest Rate Parity condition which states that in absence of a risk premium, arbitrage will ensure that the depreciation or appreciation of a country's currency vis-à-vis another will be equal to the nominal interest rate differential between them. Since under a peg, i.e. a fixed exchange rate, short of devaluation or abandonment of the fixed rate, the model implies that the two countries' nominal interest rates will be equalized. An example of which was the consequential devaluation of the Peso, that was pegged to the US dollar at 0.08, eventually depreciating by 46%. 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.
- JumpCrisscross 8y ago
  > 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.

hcmag 8y ago

I've worked with these founders over at Google. They were normal, middle-of-the-road SWEs working on some (fairly boring) DoubleClick teams, one of which eventually shut down. In a matter of a year, with no revenue, code, product, or customers, I can't believe they've raised over $100m. 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.

samfisher83 8y ago
They must be good at selling if they can convince people to get 100+ million with no "revenue, code, product, or customers." You can't hate on someone for making it.
- gitgud 8y ago
  In other words, "you gotta respect the hustle"
hashsalt 8y ago
A16Z also funded 21.co's earlier iteration when they made terrible mining rigs. The cynic in me says they believe the instant liquidity + their brand name will paper over all cracks.
aeries 8y ago
I can't speak for their coding abilities (which are a poor proxy for company founding abilities anyways), but Nader and Lawrence are both very sharp guys.
solean 8y ago
It's pretty elitist to think that you can never accomplish anything worthwhile just because you were only a low level employee at Google, which by the way, is a position most engineers dream of.

thisisit 8y ago

Something is unstable because market wants it to be unstable. There are no mathematically underpinnings which can stop them from a long time. This is a fallacy which cryptocurrency groups need to wake up from. Sure it looks like math can solve this problem and many have over the years relied on solid math only to fail. See: https://en.wikipedia.org/wiki/Long-Term_Capital_Management 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:_Big_movements_and_capping https://en.wikipedia.org/wiki/Swiss_franc#2011%E2%80%932014:... Their peg was broken many times before they removed it completely in 2015.

deleted 8y ago
[deleted]

abhv 8y ago

The last bondholders will be left holding worthless obligations when no new buyers are there to create demand. 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.

panarky 8y ago

Before you read this 2000-word treatise, know that the author, Preston Byrne, has a history of misunderstanding fundamental concepts about money and markets. Example 1: He believes Bitcoin is a fractional reserve system. https://news.ycombinator.com/item?id=15792314 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 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.

wyas 8y ago
Attacks on the author aren't the best thing in general (https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%27s_Hierarchy_of_Disagreement-en.svg https://upload.wikimedia.org/wikipedia/commons/a/a3/Graham%2...)
- panarky 8y ago
  I agree that ad hominem attacks are generally counterproductive when your goal is to evaluate an argument. However, when deciding whether to invest hours reading and discussing his latest arguments, the author's credibility is a factor.
  - wyas 8y ago
    Preston has some beliefs that don't make a lot of sense, I agree. But his ability to reason about technical facts is not impeded. There is no fundamental argument he makes that can be refuted soundly, besides just disagreements in opinion.
- thinkloop 8y ago
  Generally agree, but those are pretty damning comments showing a weak understanding of money mechanics, and this project is fundamentally about money mechanics. 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 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.

scotty79 8y ago

> The money to keep the machine going must come from somewhere, and in this case that somewhere is a new investor willing to subsidize profit-taking by earlier participants in the scheme by committing risk capital of his own. 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.