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I've always championed DAI for a stablecoin. I don't know why it's not more popular. https://makerdao.com/en/ https://makerdao.com/en/ Instead of it being (sup

I've always championed DAI for a stablecoin. I don't know why it's not more popular. https://makerdao.com/en/ https://makerdao.com/en/ Instead of it being (supposedly) backed by a dollar reserve, it's collateralized by ETH and several ERC20 tokens in a smart contract. The smart contract does things to make DAI tend toward $1. It's been out for years and I think it has worked pretty well: https://coinmarketcap.com/currencies/multi-collateral-dai/ https://coinmarketcap.com/currencies/multi-collateral-dai/ It works through collateralized loans.

nipponese 6y ago
Super interesting project and tech, but it’s competing with USDC (and similar USD-backed tokens). Adoption will just take longer for DAO-backed stablecoins.
intotheabyss 6y ago
DAI is very cool. If you want to really blow your mind, check out RAI: https://stats.reflexer.finance/ https://stats.reflexer.finance/
- rthomas6 6y ago
  Very interesting. I wonder how stable it will be vs USD over the long run. I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.
  - notahacker 6y ago
    The real question would be "how". A [crypto]asset backed by another currency is easy in principle: simply hold the currency to back it (and make sure you have some sort of transaction fee to cover your storage costs, and don't lie about it...). Same with a [crypto]asset backed by oil or metals. But CPI goods include many goods which are either perishable or lose value over time, and the composition of actual CPI baskets changes over time so you can't do that. In the absence of that backing you can create a purely synthetic asset that can only track CPI if you've got the ability to withdraw significant quantities from circulation every time the value starts to drop. (That's sort of what central banks do with targeting a fixed non-zero rate of CPI inflation. But they have an economy built on debt so the money supply can contract organically by debts being repaid faster than new debts are issued. This is less troubling for the future of a coin than alternative strategies like having to use VC/company funds to buy back coins, or making a percentage of coins disappear)
    - rthomas6 6y ago
      Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?
      - nbardy 6y ago
        You could it's a really interesting idea. Synthetix and kwanta have done it with TSLA share price. It requires a liquidity pool to balance the asset. The liquidity pools are usually seeded with rewards from the companies that start them. They eventually find stability via automated market makers.
- erwan 6y ago
  Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!
SilasX 6y ago
Can you summarize the dynamics/phenomena that those smartcontracts in DAI exploit to maintain stable value? What stops it from gaining -- or, more importantly, losing -- value? I couldn't tell from the link.
- rthomas6 6y ago
  There are a few different mechanisms. I might be missing some, but here are the ones I know about. * The interest owed on loaned DAI (called a stability fee) changes depending on the market price. So if DAI goes too high, the stability fee increases which makes getting a DAI loan less attractive. If the market price goes too low, the stability fee drops. If it drops to 0, this would mean interest free collateralized loans. * There is a savings account smart contract that generates a variable savings rate on DAI. The savings rate changes depending on the market price. * There is the Target Rate Feedback Mechanism which frankly I don't understand. It has something to do with changing the amount your collateral is worth depending on DAI's market price. * When the value of the collateralized asset drops to some defined percentage of the DAI withdrawn (currently 150% I think?), the smart contract can liquidate and auction off that asset for the value of the withdrawn DAI. This increases the value of DAI and also ensures that all DAI is overcollateralized. * MKR token holders function as the governance for DAI and vote on stuff, like the collateralization rate mentioned above. They get rewards for holding MKR and in normal circumstances the amount of MKR is static. But in the event of a black swan, if the collateralized assets drop to below 1:1 faster than the normal system can handle, MKR is automatically generated and sold to raise the additional collateral needed. This devalues MKR in order to keep DAI stable.
  - SilasX 6y ago
    Thanks, I appreciate the overview!

nipponese 6y ago

Super interesting project and tech, but it’s competing with USDC (and similar USD-backed tokens). Adoption will just take longer for DAO-backed stablecoins.

intotheabyss 6y ago

DAI is very cool. If you want to really blow your mind, check out RAI: https://stats.reflexer.finance/ https://stats.reflexer.finance/

rthomas6 6y ago
Very interesting. I wonder how stable it will be vs USD over the long run. I am interested in someone making a CPI coin, that tracks some value of a basket of goods instead of another currency. I think that would be sort of the ultimate inflation hedge because ideally the value would not change at all over the long run.
- notahacker 6y ago
  The real question would be "how". A [crypto]asset backed by another currency is easy in principle: simply hold the currency to back it (and make sure you have some sort of transaction fee to cover your storage costs, and don't lie about it...). Same with a [crypto]asset backed by oil or metals. But CPI goods include many goods which are either perishable or lose value over time, and the composition of actual CPI baskets changes over time so you can't do that. In the absence of that backing you can create a purely synthetic asset that can only track CPI if you've got the ability to withdraw significant quantities from circulation every time the value starts to drop. (That's sort of what central banks do with targeting a fixed non-zero rate of CPI inflation. But they have an economy built on debt so the money supply can contract organically by debts being repaid faster than new debts are issued. This is less troubling for the future of a coin than alternative strategies like having to use VC/company funds to buy back coins, or making a percentage of coins disappear)
  - rthomas6 6y ago
    Well, DAI exists and is pegged to USD without USD backing. Why couldn't one create a similar system with a CPI value target instead of a 1 USD target?
    - nbardy 6y ago
      You could it's a really interesting idea. Synthetix and kwanta have done it with TSLA share price. It requires a liquidity pool to balance the asset. The liquidity pools are usually seeded with rewards from the companies that start them. They eventually find stability via automated market makers.
erwan 6y ago
Short description: RAI dampens volatility (goes up slower, goes down slower) of its collateral (Eth). All thanks to some straightforward control theory tricks!

SilasX 6y ago

Can you summarize the dynamics/phenomena that those smartcontracts in DAI exploit to maintain stable value? What stops it from gaining -- or, more importantly, losing -- value? I couldn't tell from the link.

rthomas6 6y ago
There are a few different mechanisms. I might be missing some, but here are the ones I know about. * The interest owed on loaned DAI (called a stability fee) changes depending on the market price. So if DAI goes too high, the stability fee increases which makes getting a DAI loan less attractive. If the market price goes too low, the stability fee drops. If it drops to 0, this would mean interest free collateralized loans. * There is a savings account smart contract that generates a variable savings rate on DAI. The savings rate changes depending on the market price. * There is the Target Rate Feedback Mechanism which frankly I don't understand. It has something to do with changing the amount your collateral is worth depending on DAI's market price. * When the value of the collateralized asset drops to some defined percentage of the DAI withdrawn (currently 150% I think?), the smart contract can liquidate and auction off that asset for the value of the withdrawn DAI. This increases the value of DAI and also ensures that all DAI is overcollateralized. * MKR token holders function as the governance for DAI and vote on stuff, like the collateralization rate mentioned above. They get rewards for holding MKR and in normal circumstances the amount of MKR is static. But in the event of a black swan, if the collateralized assets drop to below 1:1 faster than the normal system can handle, MKR is automatically generated and sold to raise the additional collateral needed. This devalues MKR in order to keep DAI stable.
- SilasX 6y ago
  Thanks, I appreciate the overview!