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algo stablecoins work fine when they're overcollateralized, like dai. the industry keeps chasing undercollateralized algo stablecoins because of capital effici

algo stablecoins work fine when they're overcollateralized, like dai. the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. jon wu explains to laura shin, worth a watch: https://twitter.com/laurashin/status/1525505300219961344 https://twitter.com/laurashin/status/1525505300219961344

nivertech 4y ago
> algo stablecoins work fine when they're overcollateralized, like dai. DAI/MakerDAO isn't an algorithmic "stablecoin", it's an unregistered SEF (Swap Execution Facility) which should be regulated by the CFTC in the US, and similar agencies in other parts of the world. The only reason DAI didn't broke the USD peg during the "crypto" bear market, is because OG's cost base of ETH was zero to 30 cents, and their objective was to save MakerDAO, rather than make a profit on their CDPs. > the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. Isn't it obvious? ;) The energy industry also chased perpetuum mobile because of the fuel efficiency, so what? IMO there are ways to design a capital-efficient low-volatility digital assets (not algorithmic "stablecoins" per say - they're impossible), but they will most-likely be illegal in any developed country, as they will be an exotic derivative instruments. From the JTBD PoV, the job of the "stablecoins" is to hedge your exposure to the volatile "crypto" assets. The only way to do this is either to exchange them to a less volatile assets, or to enter into a contract with somebody else willing to take the risk in exchange for something.
- dropnerd 4y ago
  stablecoins don't promise to hold the peg 100%. they promise to be able to repeg in times of severe distress. even some money markets broke the dollar. they had to be bailed out by the government. what about makerdao makes it reliant on dao goodwill? the incentive to restore the peg is the expectation of profits from liquidating the overextended.
  - nivertech 4y ago
    >stablecoins don't promise to hold the peg 100%. I didn't said that. Once they're listed on "exchanges" or traded on DEX, their price isn't under control of the protocol, and in theory can be anything. >they promise to be able to repeg in times of severe distress. even some money markets broke the dollar. they had to be bailed out by the government. MMFs are funds with the NAV which supposed to be around $1.00 (that in addition to earning an interest). In case the NAV goes under $0.95, the fund has to be liquidated. See "Breaking the Buck": https://www.investopedia.com/terms/b/breaking-the-buck.asp https://www.investopedia.com/terms/b/breaking-the-buck.asp https://www.investopedia.com/articles/mutualfund/08/money-market-break-buck.asp https://www.investopedia.com/articles/mutualfund/08/money-ma... >what about makerdao makes it reliant on dao goodwill? the incentive to restore the peg is the expectation of profits from liquidating the overextended. Why people kept locking ETH in MakerDAO CDPs over and over during the "crypto" bear market, when ETH was in the free fall? It doesn't make sense from the economic PoV. It only makes sense if your ETH is cheap and you want to prove that MakerDAO works. Different agents optimize for different things. Some (most?) optimize for size of their wallet/bank account, others want to save their project/ecosystem. Both types are rational.
    - dropnerd 4y ago
      > MMF liquidated from your link: > In 2008 however, the day after Lehman Brothers Holdings Inc. filed for bankruptcy, one money market fund fell to 97 cents after writing off the debt it owned that was issued by Lehman. This created the potential for a bank run in money markets [...] the next day the United States Treasury announced a program to insure the holdings of publicly offered money market funds so that should a covered fund break the buck, investors would be protected to $1 NAV if the US Treasury insured $ust, luna would have been fine --- > Why people kept locking ETH in MakerDAO CDPs over and over during the "crypto" bear market, when ETH was in the free fall? they're long eth. it's not altruistic, it's incentive alignment.
    - MacroChip 4y ago
      I don't know the ins and outs of MakerDao. Trying to understand your point. If they were long ETH, are you saying they should still have let the liquidations happen for economic reasons? Also asking in good faith here: did you find specific instances of insolvency or are you assuming eth was falling fast enough for the liq action to be insolvent?

nivertech 4y ago

> algo stablecoins work fine when they're overcollateralized, like dai. DAI/MakerDAO isn't an algorithmic "stablecoin", it's an unregistered SEF (Swap Execution Facility) which should be regulated by the CFTC in the US, and similar agencies in other parts of the world. The only reason DAI didn't broke the USD peg during the "crypto" bear market, is because OG's cost base of ETH was zero to 30 cents, and their objective was to save MakerDAO, rather than make a profit on their CDPs. > the industry keeps chasing undercollateralized algo stablecoins because of capital efficiency. Isn't it obvious? ;) The energy industry also chased perpetuum mobile because of the fuel efficiency, so what? IMO there are ways to design a capital-efficient low-volatility digital assets (not algorithmic "stablecoins" per say - they're impossible), but they will most-likely be illegal in any developed country, as they will be an exotic derivative instruments. From the JTBD PoV, the job of the "stablecoins" is to hedge your exposure to the volatile "crypto" assets. The only way to do this is either to exchange them to a less volatile assets, or to enter into a contract with somebody else willing to take the risk in exchange for something.

dropnerd 4y ago
stablecoins don't promise to hold the peg 100%. they promise to be able to repeg in times of severe distress. even some money markets broke the dollar. they had to be bailed out by the government. what about makerdao makes it reliant on dao goodwill? the incentive to restore the peg is the expectation of profits from liquidating the overextended.
- nivertech 4y ago
  >stablecoins don't promise to hold the peg 100%. I didn't said that. Once they're listed on "exchanges" or traded on DEX, their price isn't under control of the protocol, and in theory can be anything. >they promise to be able to repeg in times of severe distress. even some money markets broke the dollar. they had to be bailed out by the government. MMFs are funds with the NAV which supposed to be around $1.00 (that in addition to earning an interest). In case the NAV goes under $0.95, the fund has to be liquidated. See "Breaking the Buck": https://www.investopedia.com/terms/b/breaking-the-buck.asp https://www.investopedia.com/terms/b/breaking-the-buck.asp https://www.investopedia.com/articles/mutualfund/08/money-market-break-buck.asp https://www.investopedia.com/articles/mutualfund/08/money-ma... >what about makerdao makes it reliant on dao goodwill? the incentive to restore the peg is the expectation of profits from liquidating the overextended. Why people kept locking ETH in MakerDAO CDPs over and over during the "crypto" bear market, when ETH was in the free fall? It doesn't make sense from the economic PoV. It only makes sense if your ETH is cheap and you want to prove that MakerDAO works. Different agents optimize for different things. Some (most?) optimize for size of their wallet/bank account, others want to save their project/ecosystem. Both types are rational.
  - dropnerd 4y ago
    > MMF liquidated from your link: > In 2008 however, the day after Lehman Brothers Holdings Inc. filed for bankruptcy, one money market fund fell to 97 cents after writing off the debt it owned that was issued by Lehman. This created the potential for a bank run in money markets [...] the next day the United States Treasury announced a program to insure the holdings of publicly offered money market funds so that should a covered fund break the buck, investors would be protected to $1 NAV if the US Treasury insured $ust, luna would have been fine --- > Why people kept locking ETH in MakerDAO CDPs over and over during the "crypto" bear market, when ETH was in the free fall? they're long eth. it's not altruistic, it's incentive alignment.
  - MacroChip 4y ago
    I don't know the ins and outs of MakerDao. Trying to understand your point. If they were long ETH, are you saying they should still have let the liquidations happen for economic reasons? Also asking in good faith here: did you find specific instances of insolvency or are you assuming eth was falling fast enough for the liq action to be insolvent?