3 ms·
I still don't see how you get to a cryptocurrency that's broadly useful as a currency without enough price stability for it to be a unit of account in some sens
by tfehring 5y ago
I still don't see how you get to a cryptocurrency that's broadly useful as a currency without enough price stability for it to be a unit of account in some sense. Tesla may have accepted BTC for payment, and it might do so again, but is it really going to commit to pricing its next model at (say) 1 BTC and just let the dollar-denominated price swing wildly? Probably not - its competitors price in dollars, so if BTC goes up it would become less attractive, and its suppliers price in dollars and other fiat currencies, so if BTC goes down its marginal revenue could fall below its marginal cost.
On top of that, BTC-denominated debt is potentially toxic for the holder. Imagine if you bought a house for, say, 1000 BTC in 2016 and your mortgage was denominated in BTC. Gradual devaluation of debt is one reason that central bank inflation targets in developed countries tend to be small positive numbers. Monetary policy is hard, and despite (totally valid) criticisms of central banks' monetary policy decisions in recent years, I'm still skeptical that anyone can do it purely algorithmically and have better results than the Fed.
I still think Libra was the only token (besides explicitly fiat-denominated stablecoins) I've seen that had a real shot at being broadly used as a currency, though I'm glad that FB won't be the ones to "own" a global currency. The "problem" is that any token that's stable enough to use as a currency is inherently too stable to have potential for large speculative gains (except if you lever it to the hilt as FX traders do today) - and IMO demand in the crypto space is still predominantly driven by speculative potential.
- martin1975 5y agoDoing a stablecoin to replace something like the USD is an extremely difficult problem. Reserve.org is one company which understands the gravity of the issue and is committed to producing a stablecoin for anyone, worthy enough to replace the USD.
- tfehring 5y agoAt a glance it looks like that's materially the same mechanism that was used by IRON [0], which blew up last week after they had to mint too many of the stabilizing tokens to try to retain the USD peg. Am I missing something? [0] https://docs.iron.finance https://docs.iron.finance
- JumpCrisscross 5y ago> a stablecoin to replace something like the USD is an extremely difficult problem It's also a solved one. There is one party on the planet that can credibly solve this problem, and it's the Fed. Walter Bagehot wrote about this effectively in 1873 [1], it's still comprehensible, and it is to the Federal Reserve Act what the Declaration is to the Constitution. Every U.S. dollar stablecoin issued by someone who is not (a) the Fed and (b) fully reserved is trying to solve the impossible trinity [2]. [1] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_of_the_Money_Market https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_... [2] https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity
- deleted 5y ago[deleted]
- dabed 5y agoCould you elaborate about how does the impossible trinity follows from (a) and (b)?
- asjdflakjsdf 5y agoI would think that early adaptors would look to take X% of their profits through crypto. If they can afford to continue operating even if they lose X, then it is an attractive opportunity, given the fact that it can rise in value so much (likely to be partly driven by their adoption if they are big and important enough). Eventually, a coin will inevitably become the default, and balance out. So, I personally don't see the instability factor as an issue right now.