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It's not a neat idea. There's no novel economic concept here. It's just a ponzi scheme that has run out of greater fools. Remove the layers of deception and it

It's not a neat idea. There's no novel economic concept here. It's just a ponzi scheme that has run out of greater fools. Remove the layers of deception and it is fundamentally a ponzi scheme.

mannanj 4y ago
As is the printing of the dollar, except it's backed by a big military and fancy bankers. Don't forget to point out how most other markets operate on similar Ponzi principles too. You can't make profit off of anything unless you can have someone else pay more for it than what you paid.
- amanaplanacanal 4y ago
  Or if it actually creates wealth like real companies.
mckirk 4y ago
You could make that argument about the majority of the crypto-currency universe, yes. I wouldn't consider an algorithmic stablecoin a ponzi scheme, though. People don't buy UST because they expect to be able to sell it to a greater fool for more; they buy it, because they expect to be able to sell it back to an equally-great fool for the same price. That expectation is founded in a shared belief in the 'value control algorithm' -- which I still think is a neat idea, in itself, because it's like a central bank in code form.
- ZitchDog 4y ago
  It turns out, you need a lot of guns to make a central bank work.
  - mckirk 4y ago
    That's what I keep telling people: until we have the autonomous murder drones, a smart contract can't really be binding outside of the cryptoverse.
  - MomoXenosaga 4y ago
    A currency is backed by armies and millions of productive citizens.
    - eudoxus 4y ago
      The problem here is that the country with the most guns (largest armies) gets to define what a "productive citizen" is. So the parent comment still stands.
- bb88 4y ago
  > I wouldn't consider an algorithmic stablecoin a ponzi scheme I would unless it's trading paper or some other non-crypto security somewhere behind the backend.
- betwixthewires 4y ago
  This particular algorithmic stablecoin is and has always been 100% a scam. If you actually look at the way the system works, it's pegged by exactly nothing, the only demand for LUNA is to burn it for UST, or to hold it for speculative purposes. Terra was never going to survive a bear, and this is only a little blip compared to past bear markets (so far).
  - mckirk 4y ago
    Considering the market caps of other crypto currencies that serve no purpose whatsoever (other than going to the moon, obviously), one could argue that by being interconnected with UST, LUNA is actually one of the more sensible currencies. Because at least it's not _just_ for speculative purposes. Though I suppose that says more about the rest of the crypto space than about LUNA's legitimacy.
    - betwixthewires 4y ago
      You could argue that, from a naive understanding of how it works. Of course, it's worse than even a useless speculative asset, because it was designed to scam people out of money. The mechanism is designed to prop up the value of LUNA while the creators accumulated BTC, not to maintain a pegged stablecoin, as stated.
      - mckirk 4y ago
        I've researched some more and come upon this article: https://kash-defi.medium.com/why-ust-is-a-superior-stablecoin-aff7d9651ce7 https://kash-defi.medium.com/why-ust-is-a-superior-stablecoi... I'd be curious to hear whether you still think it's a scam after reading it.
        betwixthewires 4y ago
        Alright, first point in the article: > For every $1 of UST, there’s an algorithm to maintain parity with the US Dollar Well that was broken yesterday. The algorithm is not sufficient because you have to have collateral to maintain parity correlation. Why would I "believe" in an algorithm? It either works or it doesn't. This one obviously doesn't. Interesting the title of the section is "belief." Things are not worth what we think they're worth because we believe it. It's a common misconception. Something is used because we believe it will still be worthwhile tomorrow, but something isn't worthwhile tomorrow just by believing it will be. > Belief in the protocol based on its mechanics, its math, its history, and its team. Belief in it's team? Nobody in their right mind in this market would ask you to believe in a team. Belief in the mechanics? Based on the writing, I'd be willing to bet the author doesn't understand the mechanics. I do, and I've explained it in this thread a few times, it is nonsensical. Then there's an admission of investment into the project and therefore bias. Then ample appeal to authority, fallacious explanations as to why Terra is different than competitors with a similar scheme, "cash flow" which is laughable in a decentralized context. The author has the audacity to claim that Luna is backed by transaction fees. This is absurd. Th rest is just shitting on something called Titan and something called Iron, which are probably low hanging fruit. Go read about nubits and nushares and learn a thing or two about previous attempts to do this.
- _delirium 4y ago
  The algorithmic part itself I think is fine. It's similar to the mechanism ETFs use to stay close to the benchmark they want to track: if the ETF ever tracks above or below its benchmark, you can arbitrage by converting the component shares to ETF shares, or by redeeming the ETF for its components. That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.
- RC_ITR 4y ago
  I think a lot of people hear ponzu scheme and think pyramid scheme, but the true definition is more “pay old investor returns from new investor principal” rather than “pay all investor returns from economic profit” By that definition almost all crypto is currently behaving like a ponzu scheme.
2bitencryption 4y ago
> There's no novel economic concept here. It's just a ponzi scheme that has run out of greater fools. Remove the layers of deception and it is fundamentally a ponzi scheme. I'm not defending the coin, but in what way is this a Ponzi scheme? It may be hair-brained and an absolutely terrible investment, but from OPs description it does sound "novel" to my novice ears. How is this specific concept (pegging one coin to $1 by using a second coin) a ponzi scheme?
- ipnon 4y ago
  It seems Ponzi scheme has become a misnomer for "scam".
  - miracle2k 4y ago
    Whereas "scam" has become to mean "thing I don't like".
    - grapeskin 4y ago
      Whereas “thing I don’t like” is used to dismiss people calling out scams.
- jhugo 4y ago
  It relies on people to keep buying the second coin (Luna) in order that its price is supported to a level that the peg mechanics work. But there's no fundamental value anywhere in the system, you can't pay your taxes with this, it's not backed up by a government with a monopoly on violence nor by a large economy of productive output. So the "trust us, it's valuable" part (which ends up being the only part that matters) doesn't work.
- deleted 4y ago
  [deleted]
- Geee 4y ago
  There's also Anchor, which is the third piece of this Ponzi. Anchor promises 20% yield on UST, and this is what generates demand for UST. However, the yield contains risk which is hidden on purpose or not generally understood. Ponzi schemers profit from this information asymmetry, and work to maintain it. Most of the yield in crypto is generated from dilution, and therefore the real return can be positive as long as there are new investors, which offset the effect of dilution. Now, classifying them as Ponzi schemes depends on how these assets are marketed and sold. Expected return of these kind of schemes is zero, which is how they should be marketed.

It's not a neat idea. There's no novel economic concept here. It's just a ponzi scheme that has run out of greater fools. Remove the layers of deception and it is fundamentally a ponzi scheme.

mannanj 4y ago

As is the printing of the dollar, except it's backed by a big military and fancy bankers. Don't forget to point out how most other markets operate on similar Ponzi principles too. You can't make profit off of anything unless you can have someone else pay more for it than what you paid.

amanaplanacanal 4y ago
Or if it actually creates wealth like real companies.

mckirk 4y ago

You could make that argument about the majority of the crypto-currency universe, yes. I wouldn't consider an algorithmic stablecoin a ponzi scheme, though. People don't buy UST because they expect to be able to sell it to a greater fool for more; they buy it, because they expect to be able to sell it back to an equally-great fool for the same price. That expectation is founded in a shared belief in the 'value control algorithm' -- which I still think is a neat idea, in itself, because it's like a central bank in code form.

ZitchDog 4y ago
It turns out, you need a lot of guns to make a central bank work.
- mckirk 4y ago
  That's what I keep telling people: until we have the autonomous murder drones, a smart contract can't really be binding outside of the cryptoverse.
- MomoXenosaga 4y ago
  A currency is backed by armies and millions of productive citizens.
  - eudoxus 4y ago
    The problem here is that the country with the most guns (largest armies) gets to define what a "productive citizen" is. So the parent comment still stands.
bb88 4y ago
> I wouldn't consider an algorithmic stablecoin a ponzi scheme I would unless it's trading paper or some other non-crypto security somewhere behind the backend.
betwixthewires 4y ago
This particular algorithmic stablecoin is and has always been 100% a scam. If you actually look at the way the system works, it's pegged by exactly nothing, the only demand for LUNA is to burn it for UST, or to hold it for speculative purposes. Terra was never going to survive a bear, and this is only a little blip compared to past bear markets (so far).
- mckirk 4y ago
  Considering the market caps of other crypto currencies that serve no purpose whatsoever (other than going to the moon, obviously), one could argue that by being interconnected with UST, LUNA is actually one of the more sensible currencies. Because at least it's not _just_ for speculative purposes. Though I suppose that says more about the rest of the crypto space than about LUNA's legitimacy.
  - betwixthewires 4y ago
    You could argue that, from a naive understanding of how it works. Of course, it's worse than even a useless speculative asset, because it was designed to scam people out of money. The mechanism is designed to prop up the value of LUNA while the creators accumulated BTC, not to maintain a pegged stablecoin, as stated.
    - mckirk 4y ago
      I've researched some more and come upon this article: https://kash-defi.medium.com/why-ust-is-a-superior-stablecoin-aff7d9651ce7 https://kash-defi.medium.com/why-ust-is-a-superior-stablecoi... I'd be curious to hear whether you still think it's a scam after reading it.
      - betwixthewires 4y ago
        Alright, first point in the article: > For every $1 of UST, there’s an algorithm to maintain parity with the US Dollar Well that was broken yesterday. The algorithm is not sufficient because you have to have collateral to maintain parity correlation. Why would I "believe" in an algorithm? It either works or it doesn't. This one obviously doesn't. Interesting the title of the section is "belief." Things are not worth what we think they're worth because we believe it. It's a common misconception. Something is used because we believe it will still be worthwhile tomorrow, but something isn't worthwhile tomorrow just by believing it will be. > Belief in the protocol based on its mechanics, its math, its history, and its team. Belief in it's team? Nobody in their right mind in this market would ask you to believe in a team. Belief in the mechanics? Based on the writing, I'd be willing to bet the author doesn't understand the mechanics. I do, and I've explained it in this thread a few times, it is nonsensical. Then there's an admission of investment into the project and therefore bias. Then ample appeal to authority, fallacious explanations as to why Terra is different than competitors with a similar scheme, "cash flow" which is laughable in a decentralized context. The author has the audacity to claim that Luna is backed by transaction fees. This is absurd. Th rest is just shitting on something called Titan and something called Iron, which are probably low hanging fruit. Go read about nubits and nushares and learn a thing or two about previous attempts to do this.
_delirium 4y ago
The algorithmic part itself I think is fine. It's similar to the mechanism ETFs use to stay close to the benchmark they want to track: if the ETF ever tracks above or below its benchmark, you can arbitrage by converting the component shares to ETF shares, or by redeeming the ETF for its components. That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.
RC_ITR 4y ago
I think a lot of people hear ponzu scheme and think pyramid scheme, but the true definition is more “pay old investor returns from new investor principal” rather than “pay all investor returns from economic profit” By that definition almost all crypto is currently behaving like a ponzu scheme.

2bitencryption 4y ago

> There's no novel economic concept here. It's just a ponzi scheme that has run out of greater fools. Remove the layers of deception and it is fundamentally a ponzi scheme. I'm not defending the coin, but in what way is this a Ponzi scheme? It may be hair-brained and an absolutely terrible investment, but from OPs description it does sound "novel" to my novice ears. How is this specific concept (pegging one coin to $1 by using a second coin) a ponzi scheme?

ipnon 4y ago
It seems Ponzi scheme has become a misnomer for "scam".
- miracle2k 4y ago
  Whereas "scam" has become to mean "thing I don't like".
  - grapeskin 4y ago
    Whereas “thing I don’t like” is used to dismiss people calling out scams.
jhugo 4y ago
It relies on people to keep buying the second coin (Luna) in order that its price is supported to a level that the peg mechanics work. But there's no fundamental value anywhere in the system, you can't pay your taxes with this, it's not backed up by a government with a monopoly on violence nor by a large economy of productive output. So the "trust us, it's valuable" part (which ends up being the only part that matters) doesn't work.
deleted 4y ago
[deleted]
Geee 4y ago
There's also Anchor, which is the third piece of this Ponzi. Anchor promises 20% yield on UST, and this is what generates demand for UST. However, the yield contains risk which is hidden on purpose or not generally understood. Ponzi schemers profit from this information asymmetry, and work to maintain it. Most of the yield in crypto is generated from dilution, and therefore the real return can be positive as long as there are new investors, which offset the effect of dilution. Now, classifying them as Ponzi schemes depends on how these assets are marketed and sold. Expected return of these kind of schemes is zero, which is how they should be marketed.