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AMMs are pretty cool, but like much of crypto today just centered around trading one coin for another. Sure that's useful, but that' assuming that these coins s

by bko 4y ago

AMMs are pretty cool, but like much of crypto today just centered around trading one coin for another. Sure that's useful, but that' assuming that these coins should be worth something and are worth holding in their own right. Algorithmic stablecoins are doomed to fail and not particularly interesting. They're all based on the notion that you can create something out of nothing. It's the cryptocurrency equivalent of a perpetual motion machine. Usually there's a floater coin that's minted and burned based on the supply and demand of the stable coin. But again, nothing answers the question why should this (floater) token be worth anything? If the token goes to 0, it all falls apart, or the more likely case that the price drops enough the there is no amount you can mint to stabilize the stable coin. SBF said as much [0]. DAOs are too complicated and rife for abuse and a constant target for attacks, so I'm not optimistic on. I think what SBF is doing is interesting as he's buying up failing businesses for the users and trust. There's definitely going to be a consolidation going on and I think its for the best. [0] https://www.bloomberg.com/news/articles/2022-04-25/sam-bankman-fried-and-matt-levine-on-how-to-make-money-in-crypto https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm...

rglullis 4y ago
> Sure that's useful, but that' assuming that these coins should be worth something and are worth holding in their own right Take the fiat-backed version of these tokens (not Tether, but ones that are backed by somewhat reputable companies) and you can have a distributed Foreign Exchange who can be reasonably profitable just by being a liquidity provider. Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account.
- karpierz 4y ago
  > Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account. Ask yourself how risky this investment is, and why existing financial services aren't arbitraging it away. 1% a month is ~12% per year, which is comparable to CCC+ corporate bonds.
  - rglullis 4y ago
    Risky? Yes, substantially. Question for you, though: how would "existing financial services" arbitrage it away? By entering the crypto market and copying Uniswap's contracts and just use smaller fees?
    - karpierz 4y ago
      > Risky? Yes, substantially. Then why not park the money in existing financial instruments which have a larger risk profile than savings accounts? CCC bonds offer >14.7% yearly returns. Argentina's 10 year bonds have ~50% yearly return. > Question for you, though: how would "existing financial services" arbitrage it away? If you think the annual returns are priced appropriately due to risk of default, then they can't. I only brought this up because you compared it the returns on a savings account. Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return.
      - rglullis 4y ago
        > Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return. No, you can not. If you go to learn how Uniswap (the AMM system being discussed) works, you'll see that liquidity providers revenue comes from the swap fees. There is no compound interest, or any compounding effect for that matter. If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there.
        arcticbull 4y ago
        > If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there. That's the definition of arbitrage.
        4y ago
- bko 4y ago
  1%-2% per month doesn't pass the smell test for something stable. You're taking on some risk, it's just hidden from you. And thats the worst kind of risk to take on. Just look at the extremes. The big risk here is impermanent loss which is inevitable unless the relative price remains stable. Or they could both go down and relative to fiat you'd be down as well
  - rglullis 4y ago
    Did I say it was stable? > The big risk here is impermanent loss. How would you get impermanent loss on a pair of tokens that are both pegged to the dollar?
    - bko 4y ago
      The peg could be broken as we've seen with a number of stable coins so far this year. I've explained in previous comments why algo-stablcoins are doomed to fail. The traditional stable coins require a lot of trust and I'm not sure how they fall in the capital structure of the company. Even if it were backed 1:1 with fiat, if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected?
      - rglullis 4y ago
        > if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected? Theoretically, yes. Circle's reserves are separated from Coinbase. So one could be worried about their assets if they were being held by Coinbase, but if you are holding USDC on your own Circle should still be able to redeem USDC for dollars.
    - bobthepanda 4y ago
      Pegs exist until they break. Mightier institutions than crypto coins have been brought to their knees trying to defend a peg.
      - rglullis 4y ago
- Aperocky 4y ago
  You're aiming for the 2% per month, they are aiming for your 100%. The only question is who gets there first.
  - rglullis 4y ago
    Who is "they"?
    - Aperocky 4y ago
      Previous investors and potential grab the bag and run ponzi scheme owner.
      - rglullis 4y ago
        There are no "previous" investors at a Uniswap Liquidity Pool. If you are going to attempt taking a dump at me, at least have some idea of what we are talking about.
        Aperocky 4y ago
        the people who took the 2% for a while before you did. And got out before it died. Sorry if I was unclear, you might be in this camp too.
        rglullis 4y ago
        There was nothing to be "taken". Liquidity providers on Uniswap are market makers. They are (automatically) buying and selling tokens, and receiving a fee for their service. Anyone can create a liquidity pool of any pair, as they see fit. It does not require any "prior" input. There is no staking, no dividend or interest of any type. The profit comes solely from the fees, and the profitability of the pool does not depend on how many people "get in" or "get out", it depends solely on how many people are willing to swap token A for token B. The more people transacting, the more fees are generated. You started this thread with some completely wise-sounding quip, but each of your responses are showing that you have absolutely no idea of how things actually work on decentralized exchanges, and that all you have are blank statements and preconceived notions about crypto.
- throwk8s 4y ago
  Where is that return of 2% per month coming from, and why are they giving it to you?
  - charcircuit 4y ago
    Users of a token swap pay a fee to have their tokens swapped. This fee gets distributed among the people who are providing liquidity proportional to how much liquidity they provide compared to everyone else. They are paying a transaction fee because they've deemed that token swap as being the most convenient or cheapest way to make the exchange.
- amluto 4y ago
  Real (traditional) successful market makers are rather more sophisticated than anything that could possibly run on the Ethereum blockchain. The fact that a market maker is a decentralized automatic magical thing that is supported by cryptography does not mean that it has a chance of competing with a good algorithm that runs on an actual computer (or FPGA or ASIC!) if the cryptocurrency market ever becomes legitimate to the point where modern market makers fully participate.
  - rglullis 4y ago
    You are missing the point. Those providing liquidity are not making money because of their sophisticated trading strategies. They make money by being the exchange.
    - amluto 4y ago
      What is “the exchange”? They are making money be being an exchange and the major market maker on it. But the fees are insane by traditional finance standards, and the barrier to entry of creating a new exchange is pretty low.
      - rglullis 4y ago
        The barrier to create a new exchange is almost zero. The code from Uniswap is open source, you can clone and be running a competitor in a day. The challenge would be in providing liquidity at levels that could compete with Uniswap's. You can go buy your userbase like Sushiswap did, but you'll see that LPs already learned their lesson that what matters is the transaction volume and these governance tokens being given as an incentive are worthless, so you need to buy both makers and traders. If you are willing to keep a lot of capital around for a long time and taking the risk of impermanent loss, eventually you will be able to take users from Uniswap. But who would do that?
  - olegjose 4y ago
charcircuit 4y ago
>Algorithmic stablecoins are doomed to fail But could we engineer one that has a 99.99999% chance not to fail after 1 year? Similarly encryption wind AES-256 is doomed to fail, but we have made the chance of failure miniscule.
- arcticbull 4y ago
  Nope. [edit] Apologies, I had written more, but I guess it didn't get posted. Pegs simply do not hold. They're like pinatas full of money. Even well-supported pegs can pay off huge if you have enough capital to break open the pinata. This is how Soros made his billions - he broke the peg of the British pound. It's extremely difficult to create ersatz dollars, it's especially difficult to do that out of marketable securities, and especially difficult to do that out of highly volatile marketable securities.
  - charcircuit 4y ago
    Please back up your reasoning. Do you think it would be possible to make one that had a 1% chance to last at least a day? Surely if you scale back the requirements eventually it would be possible to meet. Just because something in virtual doesn't mean that it doesn't have value. Why do by people pay for Netflix just to get worthless numbers streamed to them.
- plonk 4y ago
  > AES-256 is doomed to fail, but we have made the chance of failure miniscule That doesn't make sense. AES makes the cost and time length of a successful attack too expensive to be worth attempting. It's very successful in that regard and might stay that way forever. > But could we engineer one that has a 99.99999% chance not to fail after 1 year? Do you see a way of doing that?
  - charcircuit 4y ago
    >AES makes the cost and time length of a successful attack too expensive That's my point. Can we make the cost and time lengthe of a successful attack to be too expensive. >Do you see a way of doing that? Having more diverse collateral as part of the algorithm. Using rebasing to help recover the peg.

by bko 4y ago

rglullis 4y ago

> Sure that's useful, but that' assuming that these coins should be worth something and are worth holding in their own right Take the fiat-backed version of these tokens (not Tether, but ones that are backed by somewhat reputable companies) and you can have a distributed Foreign Exchange who can be reasonably profitable just by being a liquidity provider. Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account.

karpierz 4y ago
> Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account. Ask yourself how risky this investment is, and why existing financial services aren't arbitraging it away. 1% a month is ~12% per year, which is comparable to CCC+ corporate bonds.
- rglullis 4y ago
  Risky? Yes, substantially. Question for you, though: how would "existing financial services" arbitrage it away? By entering the crypto market and copying Uniswap's contracts and just use smaller fees?
  - karpierz 4y ago
    > Risky? Yes, substantially. Then why not park the money in existing financial instruments which have a larger risk profile than savings accounts? CCC bonds offer >14.7% yearly returns. Argentina's 10 year bonds have ~50% yearly return. > Question for you, though: how would "existing financial services" arbitrage it away? If you think the annual returns are priced appropriately due to risk of default, then they can't. I only brought this up because you compared it the returns on a savings account. Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return.
    - rglullis 4y ago
      > Otherwise, they could just offer a 5% savings account, deposit the money into the crypto market you're talking about, and make an easy 6% return. No, you can not. If you go to learn how Uniswap (the AMM system being discussed) works, you'll see that liquidity providers revenue comes from the swap fees. There is no compound interest, or any compounding effect for that matter. If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there.
      - arcticbull 4y ago
        > If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there. That's the definition of arbitrage.
        4y ago
bko 4y ago
1%-2% per month doesn't pass the smell test for something stable. You're taking on some risk, it's just hidden from you. And thats the worst kind of risk to take on. Just look at the extremes. The big risk here is impermanent loss which is inevitable unless the relative price remains stable. Or they could both go down and relative to fiat you'd be down as well
- rglullis 4y ago
  Did I say it was stable? > The big risk here is impermanent loss. How would you get impermanent loss on a pair of tokens that are both pegged to the dollar?
  - bko 4y ago
    The peg could be broken as we've seen with a number of stable coins so far this year. I've explained in previous comments why algo-stablcoins are doomed to fail. The traditional stable coins require a lot of trust and I'm not sure how they fall in the capital structure of the company. Even if it were backed 1:1 with fiat, if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected?
    - rglullis 4y ago
      > if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected? Theoretically, yes. Circle's reserves are separated from Coinbase. So one could be worried about their assets if they were being held by Coinbase, but if you are holding USDC on your own Circle should still be able to redeem USDC for dollars.
  - bobthepanda 4y ago
    Pegs exist until they break. Mightier institutions than crypto coins have been brought to their knees trying to defend a peg.
    - rglullis 4y ago
Aperocky 4y ago
You're aiming for the 2% per month, they are aiming for your 100%. The only question is who gets there first.
- rglullis 4y ago
  Who is "they"?
  - Aperocky 4y ago
    Previous investors and potential grab the bag and run ponzi scheme owner.
    - rglullis 4y ago
      There are no "previous" investors at a Uniswap Liquidity Pool. If you are going to attempt taking a dump at me, at least have some idea of what we are talking about.
      - Aperocky 4y ago
        the people who took the 2% for a while before you did. And got out before it died. Sorry if I was unclear, you might be in this camp too.
        rglullis 4y ago
        There was nothing to be "taken". Liquidity providers on Uniswap are market makers. They are (automatically) buying and selling tokens, and receiving a fee for their service. Anyone can create a liquidity pool of any pair, as they see fit. It does not require any "prior" input. There is no staking, no dividend or interest of any type. The profit comes solely from the fees, and the profitability of the pool does not depend on how many people "get in" or "get out", it depends solely on how many people are willing to swap token A for token B. The more people transacting, the more fees are generated. You started this thread with some completely wise-sounding quip, but each of your responses are showing that you have absolutely no idea of how things actually work on decentralized exchanges, and that all you have are blank statements and preconceived notions about crypto.
throwk8s 4y ago
Where is that return of 2% per month coming from, and why are they giving it to you?
- charcircuit 4y ago
  Users of a token swap pay a fee to have their tokens swapped. This fee gets distributed among the people who are providing liquidity proportional to how much liquidity they provide compared to everyone else. They are paying a transaction fee because they've deemed that token swap as being the most convenient or cheapest way to make the exchange.
amluto 4y ago
Real (traditional) successful market makers are rather more sophisticated than anything that could possibly run on the Ethereum blockchain. The fact that a market maker is a decentralized automatic magical thing that is supported by cryptography does not mean that it has a chance of competing with a good algorithm that runs on an actual computer (or FPGA or ASIC!) if the cryptocurrency market ever becomes legitimate to the point where modern market makers fully participate.
- rglullis 4y ago
  You are missing the point. Those providing liquidity are not making money because of their sophisticated trading strategies. They make money by being the exchange.
  - amluto 4y ago
    What is “the exchange”? They are making money be being an exchange and the major market maker on it. But the fees are insane by traditional finance standards, and the barrier to entry of creating a new exchange is pretty low.
    - rglullis 4y ago
      The barrier to create a new exchange is almost zero. The code from Uniswap is open source, you can clone and be running a competitor in a day. The challenge would be in providing liquidity at levels that could compete with Uniswap's. You can go buy your userbase like Sushiswap did, but you'll see that LPs already learned their lesson that what matters is the transaction volume and these governance tokens being given as an incentive are worthless, so you need to buy both makers and traders. If you are willing to keep a lot of capital around for a long time and taking the risk of impermanent loss, eventually you will be able to take users from Uniswap. But who would do that?
- olegjose 4y ago

charcircuit 4y ago

>Algorithmic stablecoins are doomed to fail But could we engineer one that has a 99.99999% chance not to fail after 1 year? Similarly encryption wind AES-256 is doomed to fail, but we have made the chance of failure miniscule.

arcticbull 4y ago
Nope. [edit] Apologies, I had written more, but I guess it didn't get posted. Pegs simply do not hold. They're like pinatas full of money. Even well-supported pegs can pay off huge if you have enough capital to break open the pinata. This is how Soros made his billions - he broke the peg of the British pound. It's extremely difficult to create ersatz dollars, it's especially difficult to do that out of marketable securities, and especially difficult to do that out of highly volatile marketable securities.
- charcircuit 4y ago
  Please back up your reasoning. Do you think it would be possible to make one that had a 1% chance to last at least a day? Surely if you scale back the requirements eventually it would be possible to meet. Just because something in virtual doesn't mean that it doesn't have value. Why do by people pay for Netflix just to get worthless numbers streamed to them.
plonk 4y ago
> AES-256 is doomed to fail, but we have made the chance of failure miniscule That doesn't make sense. AES makes the cost and time length of a successful attack too expensive to be worth attempting. It's very successful in that regard and might stay that way forever. > But could we engineer one that has a 99.99999% chance not to fail after 1 year? Do you see a way of doing that?
- charcircuit 4y ago
  >AES makes the cost and time length of a successful attack too expensive That's my point. Can we make the cost and time lengthe of a successful attack to be too expensive. >Do you see a way of doing that? Having more diverse collateral as part of the algorithm. Using rebasing to help recover the peg.