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These comments don't seem very relevant to stablecoins such as this one, which are algorithmic rather than backed. (Although they are now trying to back it, but

by bo1024 4y ago

These comments don't seem very relevant to stablecoins such as this one, which are algorithmic rather than backed. (Although they are now trying to back it, but that's not how it's designed.)

throwawaygh 4y ago
>>> UST loses peg >> There's a certain delight [1] in watching increased market volatility exposing how understanding merkle trees and consensus protocols doesn't make you an expert on what the financial system is, how it works and why it is the way it is. > These comments don't seem very relevant to stablecoins such as this one, which are algorithmic rather than backed Just... muah. Perfecto.
- bo1024 4y ago
  I apologize if I gave the impression that I understand meekly trees
tnzk 4y ago
> which are algorithmic rather than backed. (Although they are now trying to back it, but that's not how it's designed.) genuine question, why are trying to do when it's covered by the 'algorithm'?
- initplus 4y ago
  In this case the algorithm pegs the coin to another cryptocurrency, LUNA. You can algorithmically exchange 1 USD worth of LUNA for 1 UST at any time. But note that this algo doesn't help you cash out your LUNA! Is 1 USD worth of LUNA really worth 1 USD if there is nobody who will buy it from you? If there isn't a healthy USD-LUNA market, the fact that the UST-LUNA market is algorithmically enforced doesn't help you that much. Algorithm won't help you make a healthy LUNA-USD market, only way is to have a market maker putting up USD and LUNA reserves to offer liquidity to buyers/sellers.
  - jstrong 4y ago
    luna is way down, but there's still a luna/usd market.
    - initplus 4y ago
      Price of LUNA/USD doesn't matter so much - the issue is liquidity. Without a market maker offering sufficient liquidity to the LUNA/USD market the peg will break down. Yes there is still a price on the LUNA/USD pair, and this price has not collapsed completely. But there just aren't enough buyers on the USD side of the trade. The market isn't big enough to handle the demand to exit LUNA to USD. And so the UST peg breaks down.
- bo1024 4y ago
  That’s my question too.
jmyeet 4y ago
I hope, for your sake, you're not putting too much faith in the "algorithmic" part of this because when it comes to a central bank maintaining a peg, it's basically exactly the same thing. You should look into what open market operations actually looks like in practice. Actually the stablecoin is worse. In the case of this article the reserve funds are seemingly crowdfunded. Central banks can just print money if they have to. This of course leads Crypto Andys eschewing the printing of money with disdain but it's actually a feature not a bug.
- bo1024 4y ago
  No dog in the fight, just want to understand. From my quick look at open operations it just sounds like backed stablecoins e.g. USDT, which again is very different from how an algorithmic stablecoin is set up (not supposed to be backed at all).
  - mattwilsonn888 4y ago
    It is very different and the top commenter clearly has a dog in the fight. Also modelling your stablecoin off what Terra has done, even to critique stable coins, is foolish.
- bb88 4y ago
  > In the case of this article the reserve funds are seemingly crowdfunded. The money went elsewhere rather than backing the coin. They took the money out of the fund and assumed $LUNA would be able to back it forever. Jokes on them. amiright?
dan-robertson 4y ago
When modern countries try to maintain a currency peg, like the BoE example above, they are also not really ‘backed’ in the sense I think you mean.
- bo1024 4y ago
  But it seems they do try to participate in the market in order to move demand so that the price stays at 1. Which is just not how UST is designed at all. So I’d like to understand the difference.

by bo1024 4y ago

These comments don't seem very relevant to stablecoins such as this one, which are algorithmic rather than backed. (Although they are now trying to back it, but that's not how it's designed.)

throwawaygh 4y ago

>>> UST loses peg >> There's a certain delight [1] in watching increased market volatility exposing how understanding merkle trees and consensus protocols doesn't make you an expert on what the financial system is, how it works and why it is the way it is. > These comments don't seem very relevant to stablecoins such as this one, which are algorithmic rather than backed Just... muah. Perfecto.

bo1024 4y ago
I apologize if I gave the impression that I understand meekly trees

tnzk 4y ago

> which are algorithmic rather than backed. (Although they are now trying to back it, but that's not how it's designed.) genuine question, why are trying to do when it's covered by the 'algorithm'?

initplus 4y ago
In this case the algorithm pegs the coin to another cryptocurrency, LUNA. You can algorithmically exchange 1 USD worth of LUNA for 1 UST at any time. But note that this algo doesn't help you cash out your LUNA! Is 1 USD worth of LUNA really worth 1 USD if there is nobody who will buy it from you? If there isn't a healthy USD-LUNA market, the fact that the UST-LUNA market is algorithmically enforced doesn't help you that much. Algorithm won't help you make a healthy LUNA-USD market, only way is to have a market maker putting up USD and LUNA reserves to offer liquidity to buyers/sellers.
- jstrong 4y ago
  luna is way down, but there's still a luna/usd market.
  - initplus 4y ago
    Price of LUNA/USD doesn't matter so much - the issue is liquidity. Without a market maker offering sufficient liquidity to the LUNA/USD market the peg will break down. Yes there is still a price on the LUNA/USD pair, and this price has not collapsed completely. But there just aren't enough buyers on the USD side of the trade. The market isn't big enough to handle the demand to exit LUNA to USD. And so the UST peg breaks down.
bo1024 4y ago
That’s my question too.

jmyeet 4y ago

I hope, for your sake, you're not putting too much faith in the "algorithmic" part of this because when it comes to a central bank maintaining a peg, it's basically exactly the same thing. You should look into what open market operations actually looks like in practice. Actually the stablecoin is worse. In the case of this article the reserve funds are seemingly crowdfunded. Central banks can just print money if they have to. This of course leads Crypto Andys eschewing the printing of money with disdain but it's actually a feature not a bug.

bo1024 4y ago
No dog in the fight, just want to understand. From my quick look at open operations it just sounds like backed stablecoins e.g. USDT, which again is very different from how an algorithmic stablecoin is set up (not supposed to be backed at all).
- mattwilsonn888 4y ago
  It is very different and the top commenter clearly has a dog in the fight. Also modelling your stablecoin off what Terra has done, even to critique stable coins, is foolish.
bb88 4y ago
> In the case of this article the reserve funds are seemingly crowdfunded. The money went elsewhere rather than backing the coin. They took the money out of the fund and assumed $LUNA would be able to back it forever. Jokes on them. amiright?

dan-robertson 4y ago

When modern countries try to maintain a currency peg, like the BoE example above, they are also not really ‘backed’ in the sense I think you mean.

bo1024 4y ago
But it seems they do try to participate in the market in order to move demand so that the price stays at 1. Which is just not how UST is designed at all. So I’d like to understand the difference.