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I don't understand why there isn't more hype around the DAI stablecoin. It's an ERC-20 token that is pegged to USD through known collateral and economic incenti

I don't understand why there isn't more hype around the DAI stablecoin. It's an ERC-20 token that is pegged to USD through known collateral and economic incentives in a smart contract. It doesn't have any of the problems with Tether of the collateral not being transparent or not fully knowing how the price is staying pegged. https://makerdao.com/ https://makerdao.com/

JumpCrisscross 8y ago
> pegged to USD through known collateral I'm skeptical of any stable coin. Doubly so when they're pegged to U.S. dollars. Banks holding U.S. dollars follow American AML rules. Those include requirements around tracing beneficial ownership. Since nobody knows who beneficially owns a stablecoin, there is nobody who can vouch for those dollars' beneficial owners.
- snissn 8y ago
  have you read about it?
- htormey 8y ago
  Look at TrueUSD. They are a US based company that holds USD in escrow and do this: https://www.trusttoken.com/trueusd/ https://www.trusttoken.com/trueusd/ I was at a talk by them last week and they talked through the process they used to stay compliant.
  - JumpCrisscross 8y ago
    > US based company that holds USD in escrow It appears TrueUSD has set up a "legal framework [which] enables you to exchange USD directly with escrow accounts" [1]. When cashing out, you "receive USD from one of the escrow accounts in [their] network of fiduciary and banking partners to purchase or redeem TrueUSD." (You also need to pass "a standard KYC/AML check." This is much better than Tether. But I'm still skeptical. If a TrueUSD token is frozen as part of a bankruptcy or divorce case, or is involved in criminal proceedings, is the token frozen or the entire escrow account? How do the escrow account managers certify they know the beneficial owners of their escrow accounts? "Know your customer" is a basic American financial principle, and one stable coins of any stripe inherently butt up against. [1] https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-you-can-trust-9688796cfd0d https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-...
- coolspot 8y ago
  The idea behind DAI is that it is over collaterized by Ethereum coins. For example to issue $100 worth of DAI someone has to put $200 worth of Eth into a contract. Then if price falls down significantly issuer has choice of adding collateral to keep collaterization ratio high, or face automated liquidation when Ethereum is sold to cover DAI nomination. Not sure how significant permanent drop in price would be handled, as I understand it would cause cascade liquidation and massive loss for all parties involved (issuers and holders of DAI).
  - notahacker 8y ago
    It's certainly a better idea than Tether's false accounting, but I'd rather have my dollars undercollateralized by a bank backed by reserve lending and depositor protection schemes than overcollateralized by much riskier assets like ETH.
    - rthomas6 8y ago
      I agree. But eventually they plan to allow for many forms of collateral, and peg the price to a basket of goods. If convenience were the same, I would rather hold an overcollateralized currency with stocks, bonds, gold, ETH, etc. underneath. Such a thing does not exist yet, but I'm excited that it will, if MakerDAO continues to follow through on their plans.
      - notahacker 8y ago
        Trouble is, I don't see how smart contracts validate the actual presence of assets like stocks, bonds and gold underneath. There's obviously going to be centralization and trust necessary, in which case I might as well rely on regulated financial intermediaries exchanging real dollars rather than hold a synthetic dollar with the downside counterparty and residual value risk associated with holding derivatives linked to a basket of goods but no upside. I'm also struggling to understand the incentive for people to overcollateralize to receive tokens notionally equivalent to dollars and how that's convenient
        8y ago
- rthomas6 8y ago
  Eventually they plan to move to a version that is tied to some CPI (basket of goods) rather than one currency. DAI is really borrowed against collateral (right now it's Ethereum, but there are plans for muliple forms of collateral), and these collateralized debt positions are public info. If the underlying collateral's value falls too far, the position is automatically liquidated and the underlying collateral is sold to pay for the debt before returning the remainder to the borrower. Those two mechanisms are the only means of DAI creation, which means that it can never get in an undercollateralized position without everyone knowing. Everything about it is transparent, there are no hidden beneficial owners really. Their names may not be known, but all financial positions are known.
  - tomjakubowski 8y ago
    > Eventually they plan to move to a version that is tied to some CPI (basket of goods) rather than one currency. Is the idea that someone will guarantee me some basket of consumer goods (or some amount of another currency which can readily be exchanged for said basket) if I give them 1 DAI?
    - rthomas6 8y ago
      Not really. It's just a way of measuring value more removed from any one nation's currency. You take the price, in DAI, of a bunch of historically stable priced goods. Bread, tires, shoes, etc. Measure the averaged normalized variance in price over time for these goods in DAI. Then tune the economic incentives to make those variances stay at as close to zero as possible. https://en.wikipedia.org/wiki/Consumer_price_index https://en.wikipedia.org/wiki/Consumer_price_index
- berberous 8y ago
  I don't think you understand Dai. It's pegged to USD, meaning that it tries to be as stable as the USD, but is not actually backed by USD. KYC/AML issues are no different than those that apply to BTC (e.g., if you try to cash out BTC or Dai via a U.S. exchange for USD, you will need to pass U.S. KYC).
  - drcode 8y ago
    This is not true, as far as I understand: The vast majority of DAI is backed by fiat currencies via a complex mechanism involving multiple outside parties. The earliest version of DAI was envisioned as being 100% unbacked, but the collateral requirements to make that feasible ended up being prohibitive.
    - wegwerfbenutzer 8y ago
      No, currently DAI is backed by Ethereum. You only need to spend one minute on their website or subreddit to get this information. I follow them for a long time and never even heard of them being backed by fiat. They only try to use virtual goods like virtual gold, cryptocurrencies etc. as collateral.
      - drcode 8y ago
        Virtual gold is not "backed by ethereum" it is backed by gold. These are obviously the third parties I'm talking about.
      - RexetBlell 8y ago
        Dai is not backed by Ethereum. Dai is backed by Ether.
        rthomas6 8y ago
        Okay Mr. Pedant. Actually Dai isn't backed by either one. It's backed by an ERC-20 token called Pooled Ether.
    - 8y ago
- theptip 8y ago
  I see two distinct types of coin referred to as "stable coin" -- dynamic supply coins like Bancor, and fiat-backed tokens like Tether allegedly is. I think there are fundamental problems with Schellingcoins / other smart-contract-based coins which try to dynamically adjust the supply to maintain a peg; the underlying economics seems pretty shaky (e.g. see http://hackingdistributed.com/2017/06/19/bancor-is-flawed/ http://hackingdistributed.com/2017/06/19/bancor-is-flawed/). I don't think that the same problems exist with fiat-backed coins though, IFF the full reserve is held. The problem with pegs is when you don't have enough reserve to prevent the peg being broken. Tether is supposed to be full backed like this, but the fact that they broke up with their auditor suggests that they are not being honest about their reserves. Although, if your USD-coin is issued by Bank of America, and they apply the same fractional reserve rules that they do to their normal deposits, is there any difference at all? There's nothing in principle preventing a blockchain from tying wallets to KYC'd individuals, thus resolving the UBO for a given payment/settlement; Stellar and Ripple both have KYC protocols built in.
  - fiter 8y ago
    Fractional reserve refers to the reserve of cash, but it does not refer to the reserve of total assets/liabilities. If you are implying Tether is backed by total assets/liabilities, then some people might be OK. On the other hand, some people might be concerned if it was backed by cryptocurrencies which are rather volatile. The volatility of the cryptocurrencies could then result in volatility in Tether.
    - theptip 8y ago
      Tether claims to be 1:1 backed, i.e. each USDT issued is backed by a USD in their reserve. I don't believe that is actually true in Tether's case, but yes, I was referring to 1USD in reserve per 1USD-stable-token as the viable stable/pegged token case.
api 8y ago
One of the more depressing things I've noticed in my time on this planet is that hype is often unrelated to or even inversely related to merit. I hypothesize three reasons for this: (1) The skills behind hype often do not intersect with the skills behind actually building great stuff, or at least rarely do in the same individual. (2) Every individual and team only has so much time. You either spend that time building stuff or spend that type hyping. If you spend that time hyping you're not building. If you spend your time building there's no hype because you're not out hustling and blowing hot air. (3) More knowledgeable people are skeptical of hype and tend not to spread it even for things that deserve it. Less knowledgeable people are more likely to both believe hype and spread it. Hype for things that wow the ignorant has better virality than hype for things that wow the knowledgeable since even when 'wowed' the knowledgeable tend not to spread hype. Even in cases where there's a lot of hype around someone or something with substance (e.g. Elon's ventures) hype still tends to far outrun substance. I just take all Elon's time estimates and multiply them by 2-4 and I discount the more extreme stuff as likely just hype. "Oh that's cool, I'll believe it when I see it." But Elon's companies do actually deliver cool stuff and I try to judge them objectively on that as if the hype didn't exist. It's really bad in the cryptocurrency world. Below the top two or three many of the highest market cap coins and other crypto systems are half-baked things that don't work, mere clones of Bitcoin that have been heavily pumped, or even outright scams. Stuff that works and is novel is relegated to pages two and onward on coinmarketcap. Case in point: Filecoin raised massive amounts of money on nothing but a white paper while Sia had a working system (though still not good enough to displace Backblaze or S3) and raised a tiny fraction of this and got nowhere near the hype. Edit: Considering all of the above I consider hype a contrarian indicator. Without a whole lot of substance just under the fold (e.g. SpaceX) it's a powerful contrarian indicator.
- matt4077 8y ago
  "Hype" derived from greek "hyper", i. e. "too much". So congratulations on all your smartthoughts, but you've just taken a long walk to where you started.
- LiweiZ 8y ago
  I love things with substance. Those are where the beauty of human intelligence and execution lies. However, hype does solve the most difficult part of sales process: customer's willingness to pay. And it solves it way beyond perfect. After 15 years learning in the market, it's the mindset I found I need to learn and adapt to. I don't like the feeling of being dragging to most likely opposite directions. But sales seems more important to a lot of market participants.
hudon 8y ago
Preston Byrne has a good series on why the DAI and stablecoins in general make unsubstantiated claims and can only work while the price is going up. 1. https://prestonbyrne.com/2017/12/10/stablecoins-are-doomed-to-fail/ https://prestonbyrne.com/2017/12/10/stablecoins-are-doomed-t... 2. https://prestonbyrne.com/2018/01/11/epicaricacy/ https://prestonbyrne.com/2018/01/11/epicaricacy/ 3. https://prestonbyrne.com/2018/03/22/stablecoins-are-doomed-to-fail-pt-iii-saga/ https://prestonbyrne.com/2018/03/22/stablecoins-are-doomed-t...
- rthomas6 8y ago
  Well yeah, if all underlying reserves lose value, the stablecoins are going to tank as well. And yes, holding all reserves in one form of value is not good. But the eventual idea is to hold reserves (allow people to borrow using collateral) in multiple forms, like tokens tied to ownership of things like stocks, bonds, gold, etc. as well as other cryptocurrencies. And despite what this guy says, DAI has remained pretty stable: https://coinmarketcap.com/currencies/dai/ https://coinmarketcap.com/currencies/dai/
qyv 8y ago
The cynical view: there is more money to be made with scam's than legitimacy.
csomar 8y ago
There are other attempts that works "pretty" well: Bitshares and BitUSD. They do actually function and BitUSD had stable value. The problem, I guess, is that these are still derivatives of the USD. They can collapse if the crypto market goes through a rough bear. They are still not the real thing. Bitfinex is working on a decentralized exchange. It is the first step to get the scheme working.

JumpCrisscross 8y ago

> pegged to USD through known collateral I'm skeptical of any stable coin. Doubly so when they're pegged to U.S. dollars. Banks holding U.S. dollars follow American AML rules. Those include requirements around tracing beneficial ownership. Since nobody knows who beneficially owns a stablecoin, there is nobody who can vouch for those dollars' beneficial owners.

snissn 8y ago
have you read about it?
htormey 8y ago
Look at TrueUSD. They are a US based company that holds USD in escrow and do this: https://www.trusttoken.com/trueusd/ https://www.trusttoken.com/trueusd/ I was at a talk by them last week and they talked through the process they used to stay compliant.
- JumpCrisscross 8y ago
  > US based company that holds USD in escrow It appears TrueUSD has set up a "legal framework [which] enables you to exchange USD directly with escrow accounts" [1]. When cashing out, you "receive USD from one of the escrow accounts in [their] network of fiduciary and banking partners to purchase or redeem TrueUSD." (You also need to pass "a standard KYC/AML check." This is much better than Tether. But I'm still skeptical. If a TrueUSD token is frozen as part of a bankruptcy or divorce case, or is involved in criminal proceedings, is the token frozen or the entire escrow account? How do the escrow account managers certify they know the beneficial owners of their escrow accounts? "Know your customer" is a basic American financial principle, and one stable coins of any stripe inherently butt up against. [1] https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-you-can-trust-9688796cfd0d https://blog.trusttoken.com/trueusd-a-usd-backed-stablecoin-...
coolspot 8y ago
The idea behind DAI is that it is over collaterized by Ethereum coins. For example to issue $100 worth of DAI someone has to put $200 worth of Eth into a contract. Then if price falls down significantly issuer has choice of adding collateral to keep collaterization ratio high, or face automated liquidation when Ethereum is sold to cover DAI nomination. Not sure how significant permanent drop in price would be handled, as I understand it would cause cascade liquidation and massive loss for all parties involved (issuers and holders of DAI).
- notahacker 8y ago
  It's certainly a better idea than Tether's false accounting, but I'd rather have my dollars undercollateralized by a bank backed by reserve lending and depositor protection schemes than overcollateralized by much riskier assets like ETH.
  - rthomas6 8y ago
    I agree. But eventually they plan to allow for many forms of collateral, and peg the price to a basket of goods. If convenience were the same, I would rather hold an overcollateralized currency with stocks, bonds, gold, ETH, etc. underneath. Such a thing does not exist yet, but I'm excited that it will, if MakerDAO continues to follow through on their plans.
    - notahacker 8y ago
      Trouble is, I don't see how smart contracts validate the actual presence of assets like stocks, bonds and gold underneath. There's obviously going to be centralization and trust necessary, in which case I might as well rely on regulated financial intermediaries exchanging real dollars rather than hold a synthetic dollar with the downside counterparty and residual value risk associated with holding derivatives linked to a basket of goods but no upside. I'm also struggling to understand the incentive for people to overcollateralize to receive tokens notionally equivalent to dollars and how that's convenient
      - 8y ago
rthomas6 8y ago
Eventually they plan to move to a version that is tied to some CPI (basket of goods) rather than one currency. DAI is really borrowed against collateral (right now it's Ethereum, but there are plans for muliple forms of collateral), and these collateralized debt positions are public info. If the underlying collateral's value falls too far, the position is automatically liquidated and the underlying collateral is sold to pay for the debt before returning the remainder to the borrower. Those two mechanisms are the only means of DAI creation, which means that it can never get in an undercollateralized position without everyone knowing. Everything about it is transparent, there are no hidden beneficial owners really. Their names may not be known, but all financial positions are known.
- tomjakubowski 8y ago
  > Eventually they plan to move to a version that is tied to some CPI (basket of goods) rather than one currency. Is the idea that someone will guarantee me some basket of consumer goods (or some amount of another currency which can readily be exchanged for said basket) if I give them 1 DAI?
  - rthomas6 8y ago
    Not really. It's just a way of measuring value more removed from any one nation's currency. You take the price, in DAI, of a bunch of historically stable priced goods. Bread, tires, shoes, etc. Measure the averaged normalized variance in price over time for these goods in DAI. Then tune the economic incentives to make those variances stay at as close to zero as possible. https://en.wikipedia.org/wiki/Consumer_price_index https://en.wikipedia.org/wiki/Consumer_price_index
berberous 8y ago
I don't think you understand Dai. It's pegged to USD, meaning that it tries to be as stable as the USD, but is not actually backed by USD. KYC/AML issues are no different than those that apply to BTC (e.g., if you try to cash out BTC or Dai via a U.S. exchange for USD, you will need to pass U.S. KYC).
- drcode 8y ago
  This is not true, as far as I understand: The vast majority of DAI is backed by fiat currencies via a complex mechanism involving multiple outside parties. The earliest version of DAI was envisioned as being 100% unbacked, but the collateral requirements to make that feasible ended up being prohibitive.
  - wegwerfbenutzer 8y ago
    No, currently DAI is backed by Ethereum. You only need to spend one minute on their website or subreddit to get this information. I follow them for a long time and never even heard of them being backed by fiat. They only try to use virtual goods like virtual gold, cryptocurrencies etc. as collateral.
    - drcode 8y ago
      Virtual gold is not "backed by ethereum" it is backed by gold. These are obviously the third parties I'm talking about.
    - RexetBlell 8y ago
      Dai is not backed by Ethereum. Dai is backed by Ether.
      - rthomas6 8y ago
        Okay Mr. Pedant. Actually Dai isn't backed by either one. It's backed by an ERC-20 token called Pooled Ether.
  - 8y ago
theptip 8y ago
I see two distinct types of coin referred to as "stable coin" -- dynamic supply coins like Bancor, and fiat-backed tokens like Tether allegedly is. I think there are fundamental problems with Schellingcoins / other smart-contract-based coins which try to dynamically adjust the supply to maintain a peg; the underlying economics seems pretty shaky (e.g. see http://hackingdistributed.com/2017/06/19/bancor-is-flawed/ http://hackingdistributed.com/2017/06/19/bancor-is-flawed/). I don't think that the same problems exist with fiat-backed coins though, IFF the full reserve is held. The problem with pegs is when you don't have enough reserve to prevent the peg being broken. Tether is supposed to be full backed like this, but the fact that they broke up with their auditor suggests that they are not being honest about their reserves. Although, if your USD-coin is issued by Bank of America, and they apply the same fractional reserve rules that they do to their normal deposits, is there any difference at all? There's nothing in principle preventing a blockchain from tying wallets to KYC'd individuals, thus resolving the UBO for a given payment/settlement; Stellar and Ripple both have KYC protocols built in.
- fiter 8y ago
  Fractional reserve refers to the reserve of cash, but it does not refer to the reserve of total assets/liabilities. If you are implying Tether is backed by total assets/liabilities, then some people might be OK. On the other hand, some people might be concerned if it was backed by cryptocurrencies which are rather volatile. The volatility of the cryptocurrencies could then result in volatility in Tether.
  - theptip 8y ago
    Tether claims to be 1:1 backed, i.e. each USDT issued is backed by a USD in their reserve. I don't believe that is actually true in Tether's case, but yes, I was referring to 1USD in reserve per 1USD-stable-token as the viable stable/pegged token case.

api 8y ago

One of the more depressing things I've noticed in my time on this planet is that hype is often unrelated to or even inversely related to merit. I hypothesize three reasons for this: (1) The skills behind hype often do not intersect with the skills behind actually building great stuff, or at least rarely do in the same individual. (2) Every individual and team only has so much time. You either spend that time building stuff or spend that type hyping. If you spend that time hyping you're not building. If you spend your time building there's no hype because you're not out hustling and blowing hot air. (3) More knowledgeable people are skeptical of hype and tend not to spread it even for things that deserve it. Less knowledgeable people are more likely to both believe hype and spread it. Hype for things that wow the ignorant has better virality than hype for things that wow the knowledgeable since even when 'wowed' the knowledgeable tend not to spread hype. Even in cases where there's a lot of hype around someone or something with substance (e.g. Elon's ventures) hype still tends to far outrun substance. I just take all Elon's time estimates and multiply them by 2-4 and I discount the more extreme stuff as likely just hype. "Oh that's cool, I'll believe it when I see it." But Elon's companies do actually deliver cool stuff and I try to judge them objectively on that as if the hype didn't exist. It's really bad in the cryptocurrency world. Below the top two or three many of the highest market cap coins and other crypto systems are half-baked things that don't work, mere clones of Bitcoin that have been heavily pumped, or even outright scams. Stuff that works and is novel is relegated to pages two and onward on coinmarketcap. Case in point: Filecoin raised massive amounts of money on nothing but a white paper while Sia had a working system (though still not good enough to displace Backblaze or S3) and raised a tiny fraction of this and got nowhere near the hype. Edit: Considering all of the above I consider hype a contrarian indicator. Without a whole lot of substance just under the fold (e.g. SpaceX) it's a powerful contrarian indicator.

matt4077 8y ago
"Hype" derived from greek "hyper", i. e. "too much". So congratulations on all your smartthoughts, but you've just taken a long walk to where you started.
LiweiZ 8y ago
I love things with substance. Those are where the beauty of human intelligence and execution lies. However, hype does solve the most difficult part of sales process: customer's willingness to pay. And it solves it way beyond perfect. After 15 years learning in the market, it's the mindset I found I need to learn and adapt to. I don't like the feeling of being dragging to most likely opposite directions. But sales seems more important to a lot of market participants.

hudon 8y ago

Preston Byrne has a good series on why the DAI and stablecoins in general make unsubstantiated claims and can only work while the price is going up. 1. https://prestonbyrne.com/2017/12/10/stablecoins-are-doomed-to-fail/ https://prestonbyrne.com/2017/12/10/stablecoins-are-doomed-t... 2. https://prestonbyrne.com/2018/01/11/epicaricacy/ https://prestonbyrne.com/2018/01/11/epicaricacy/ 3. https://prestonbyrne.com/2018/03/22/stablecoins-are-doomed-to-fail-pt-iii-saga/ https://prestonbyrne.com/2018/03/22/stablecoins-are-doomed-t...

rthomas6 8y ago
Well yeah, if all underlying reserves lose value, the stablecoins are going to tank as well. And yes, holding all reserves in one form of value is not good. But the eventual idea is to hold reserves (allow people to borrow using collateral) in multiple forms, like tokens tied to ownership of things like stocks, bonds, gold, etc. as well as other cryptocurrencies. And despite what this guy says, DAI has remained pretty stable: https://coinmarketcap.com/currencies/dai/ https://coinmarketcap.com/currencies/dai/

qyv 8y ago

The cynical view: there is more money to be made with scam's than legitimacy.

csomar 8y ago

There are other attempts that works "pretty" well: Bitshares and BitUSD. They do actually function and BitUSD had stable value. The problem, I guess, is that these are still derivatives of the USD. They can collapse if the crypto market goes through a rough bear. They are still not the real thing. Bitfinex is working on a decentralized exchange. It is the first step to get the scheme working.