Price stability and basecoin

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xjones

Member
There is a new proposed cryptocurrency called basecoin that is designed to be price-stable.

Essentially, there will be two coins, one with stable value and adjustable quantity, and one with unstable value and predetermined quantity. By a serious of auctions, the value of the first one is kept stable, while its quantity is bought and sold using the second one.

I feel that the Dash developers should consider using this type of strategy in a future revision of Dash.

Since Dash has a funding mechanism for development, it has an advantage over most other crytocurrencies, and it can afford to make big bets on new ideas. Especially if the result will be a cryptocurrency (call it CDASH or currency DASH) whose value is always $1 in inflation-adjusted 2017 dollars. It would be extremely useful as a currency.

And at the same time, its partner currency (call it GDASH for gold DASH) would be mined and would appreciate in value like today's DASH, so it would be useful as an investment.

The best of both worlds.

Somebody is going to do it eventually. Maybe basecoin, maybe somebody else. It might as well be Dash that makes it work first, with its more stable funding mechanism.

Reference:

See the section "Price-stable coins" in:

 
Interesting concept. It's probably way too early/coming way too far from left field for something like this to be considered for Dash right now, but as always it's best to learn as much as possible about developments in crypto and to always be thinking about possible applications
 
Sounds similar to how nubits works.

I was once a fan of pegged assets but I have since come to realize just how difficult it is to actually make it work in the long term. Given the amount of work going into decentralized exchanges, there probably isn't much need for this now.
 
An on-chain USD tracking token as part of the Dash ecosystem would be a huge asset to the platform. It would be a major undertaking, but it would make Dash merchant acceptance extremely easy.

Laser focus on Evolution right now... But future plans??
 
xjones said:
The basecoin white paper explains why nubits is a poor model for price stability.

P. 17
http://www.getbasecoin.com/basecoin_whitepaper_0_99.pdf
Click to expand...

Does it also dismiss bitusd? The whitepaper wouldn't load "for my location".

There are other stable / pegged tokens (digix etc) and I think it's probably best to make these accessible but independent of dash. It would be nice to see them in a dash wallet, thus giving options and neutrality to our users. By developing and maintaining our own stable token, we introduce bias and unnecessary risk.
 
Yes, the paper also criticizes bitusd as given below. (Fair use excerpts.)
  • The BitUSD peg is enforced by a weak self-reinforcement scheme backed by the BitShares company as a lender of last resort, not by the protocol itself. The only reason BitShares are worth 1 USD is because everyone believes it’ll be worth 1 USD, and therefore everyone always shorts and longs in order to keep it there. If everyone one day just decides that BitUSD should be worth $100, then the equilibrium will adjust, and it’ll re-peg to $100. The only reason it’s even stayed stable this long is likely because the BitShares company acts as lender of last resort to enforce the peg when someone tries to break it. But this will almost certainly get too expensive one day, resulting in the complete breakdown of BitUSD as a price-stable currency. Incidentally, when we explained this to one of our friends, he immediately suggested we raise a few million dollars and use it to demolish the peg by bidding it up to a new equilibrium, which would be extremely profitable, in the same way George Soros broke the bank of England. Note that this is much different from Basecoin’s protocol, where a negative feedback loop is enforced at a protocol-level to keep the price pegged to $1.
  • BitShares wasn’t designed to be a stable coin, it was designed to be a prediction market. Although the above weakness is a complete deal-breaker for a stable coin in our opinion, it’s important to remember that BitShares is useful for much more than a stable coin—it’s a generalized prediction market that you can use to place bets on anything. For that reason, we would guess (though we don’t know for sure) that BitShares wasn’t even really designed to implement a stable coin, and the fact that you can have them on its platform is just a happy coincidence, and a testament to how generalizable their platform is.
Not sure why they would block you from viewing this, maybe just a misconfiguration.

Edit: Try a Google search for:

Basecoin: A Robust, Price-Stable Cryptocurrency with an Algorithmic Central Bank

Google's cache contains the entire paper in a readable format.
 
One more reason why Dash might be able to easily implement the ideas in the above white paper is as follows. Their scheme requires some type of oracle, i.e., humans who feed data about the current exchange rate into the blockchain. Dash already has a system in place that could be easily modified to do this: the masternode voting mechanism for funding purposes. A slight modification would make this into an oracle system too.
 
IronVape said:
An on-chain USD tracking token as part of the Dash ecosystem would be a huge asset to the platform. It would be a major undertaking, but it would make Dash merchant acceptance extremely easy.

Laser focus on Evolution right now... But future plans??
Click to expand...

Pegged to the USD? I thought the idea was to peg it to something stable :p
 
stan.distortion said:
Pegged to the USD? I thought the idea was to peg it to something stable :p
Click to expand...


What?!? The US dollar has only lost ~98% of its value since the Fed (with its virtually unlimited resources) was tasked with making the U.S. dollar stable.

It is an interesting and complex problem with at least 5 parts. 1. How to achieve an asset with guaranteed stability without breaking the bank...literally? 2. Stable, compared to what? 3. Exactly what utility does this stable asset bring? 4. Depending on how one achieves stability, it is likely that it also precludes the ability to capture the upside potential as well. 5. Is there an easier, less risky or less expensive way to achieve the desired or similar outcome, like hedging with a basket of diverse assets?

The short version, it is very very challenging to have your cake and eat it to.

This is really really outside my wheelhouse, but I like to read the smart people sometimes. I have this suspicion that way down at the fundamental level, achieving a stable asset is fighting against entropy, which has essentially unlimited resources to make things random and dynamic.

It is true that there are a bunch of super creative, super talented people applying a lot of horsepower to this problem. Certainly we should try to stay informed of progress in this area.
 
Just some points to add.. Not contradicting anyone:
1. Pegging is not desirable. All pegs are gameable and ultimately doomed.
2. Tracking / hedging is desirable.
3. Tracking USD is good because...
3 A. It's easer to track something with falling value than the opposite.
3 B. USD is the closest thing to world currency that exists at this time.
4. We're not talking about stabilizing Dash vs. USD. We are taking about using Dash as a tool to help a "sub-Dash" token maintain it's tracking of USD.
 
IronVape said:
Just some points to add.. Not contradicting anyone:
1. Pegging is not desirable. All pegs are gameable and ultimately doomed.
2. Tracking / hedging is desirable.
3. Tracking USD is good because...
3 A. It's easer to track something with falling value than the opposite.
3 B. USD is the closest thing to world currency that exists at this time.
4. We're not talking about stabilizing Dash vs. USD. We are taking about using Dash as a tool to help a "sub-Dash" token maintain it's tracking of USD.
Click to expand...

There are much better options than the USD but the first point is well worth going into in more detail:

Two tokens, one regular crypto, fixed supply, price decided by market forces etc. the other fixed value, variable supply. Imo the stable token shouldn't be tradable because if it was it would no longer be stable, its value would be dictated by market forces so the two tokens address two different properties of money, one is a store of value and the other widely accepted.

All good so far, your savings are worth the same in a hundred years as they are today and you can easily swap them for tokens you can buy coffee with... or maybe buy ten coffees with in a few years time... or only half a coffee depending on the markets moods. So what happens to the supply? When markets are rising there's little incentive to save, when they're falling there's a strong incentive to save. The tradable token goes up and 1 is worth, say, 10 stable tokens. Now it goes down and those 10 stable tokens are worth 3 tradable tokens. Now it goes back up again and those 3 are worth 30 stable tokens, down and those 30 are worth 10, up and those 10 are worth 100...

Ok, those values are exaggerated, as markets grow they inherently become more stable but the principle is the same, it breaks fixed supply. That's just with the assumption markets are rational and based solely on supply and demand. Anyone following them knows that's a fallacy, they're frequently manipulated and a whole new way of profiting from manipulation has just been created. As sure as eggs is eggs a market for an asset with that kind of mechanism in place will have strong fluctuations to take advantage of that property.

There's also a feedback loop. With falling prices there's a strong incentive to switch to the stable token but bills must be paid and to do so they have to be switched back to the tradable token which already has an excess of supply v demand and the the further it falls the more are created as part of the switch, it amplifies the situation and can result in a death spiral.

I'm pretty sure those issues can be fixed but doing so adds complications, what initially looks like a simple and elegant system could quickly end up looking like mystic voodoo and that ain't gonna fly, if it's not easy to understand then folks aren't going to trust it.
 
Based on what I am reading here, I'm pretty sure most of you didn't read the basecoin white paper (or even the Nader Theory blog) before posting your response.
 
xjones said:
Based on what I am reading here, I'm pretty sure most of you didn't read the basecoin white paper (or even the Nader Theory blog) before posting your response.
Click to expand...

I'm working my way through it, and this time running down all the references, etc.

But here is the fundamental bedrock foundational problem. Many many mechanisms have been tried to produce a stable value asset, especially in the last 100 years. And ultimately, to the best of my knowledge, none of them were successful in the long run. It's like the 4 fundamental rules of thermodynamics, you can try 756 clever workarounds that look like they might work. But ultimately, you can't break those rules.

And having a two part product, one with fixed value but variable supply, and the other half variable price but fixed supply, and all possible permutations of those pairs, still can't prevent gaming a fixed value asset.

Again, this is not my specialty and I would love to be proved wrong, but I don't think that has happened yet...
 
Oh, and just to be clear, I'm not saying a cryptocurrency cannot be made relatively stable. I think it could. Likely better than U.S. dollars if we do it right. However, I think you cannot reliably produce a token that guarantees a fixed amount of buying power in the long run.
And maybe we don't need that. Maybe we just need a cryptocurrency that is stable enough that merchants and buyers don't get pinched by short term variations, and it may even be an economic benefit if the long term trend is mildly deflationary in a fairly predictable way.
 
I am hopeful that Pablomb will drop in and give an opinion. He is a thoughtful guy regarding the mechanics of token valuation and 89 other things.
 
Dear @xjones,

I have read both your post (with its reference) and the basecoin whitepaper.

First, I want to say that basecoin base does not use “the gold coin” as the instrument to stabilize the basecoin price. Basecoin issues and redeems bonds as a medium for expanding and contracting the monetary supply. The open markets act as auditors of the system and react accordingly, theoretically, stabilizing the price. This setup is a way to transferring the risk of price deviations from the public (users of the currency) to specific risk takers (bonds holders).

Now we can face your specific proposal, which aims to use one currency as the risk-taking instrument for stabilizing the price of the other currency. I think the setup you are proposing is the following: you have two currencies (A & B) of which you control the supply of one of them (A) through acting in the markets. There is also a third currency C which you want to use as reference for the value of A (say you want A = C at all times). You want A to have a stable value, so if the price of A rises, you actually issue new units of A which you instantly sell in the markets to compensate for the rise. While doing so you obtain B, because you act in the A/B market. On the other hand, of the value of A falls, you need B purchasing power in order to reduce the supply of A. In other words, you sell B to obtain A in exchange.

One problem with this setup is that you cannot guarantee you will have the funds necessary of currency B to compensate for the A-C bias. Just to give you an example. If you wanted to use the whole one month Dash budget to compensate for the volatility of Dash itself you would find yourself with about 6,650 DASH, acting in a market with a daily volume of 150,000 DASH. And that without counting for the utilitarian trades, which in a generally accepted currency would represent much more volume than that of the exchanges. Of course, it can work if the A-C bias is small naturally, but to get that naturally small bias you need to prove to the public enough reserves in the currency B. As much reserves as the value of the total amount of A issued. Therefore, it is dangerous, as if there is any doubt regarding your reserves, it can quickly put you in a situation where you do not have enough funds to compensate for the price decrease and your A will no longer be equal to C, but a fraction of it. It already happened to Tether.

Apart from the former, another important problem will arise. If the purpose of currency A is to be a usable currency, then there will be no value left in currency B as a currency (but just as a reserve of value), as it will no longer be a general-purpose currency, but just a risk-taking instrument (hedge against inflation). It can quickly put you in a situation where it will not be able to be used for compensating the bias of A-C.

So i see two problems:

- The currency you use as a tool (B) becomes worthless as a currency.
- You cannot guarantee that you will have enough reserves of B to compensate for the A-C bias at all times.


In the case of Tether you don't have B, but just A (Tether) and C (USD). You use C as B. Thanks to that you do not face the problem number 1, but just the number 2.

In addition, one of the purposes of Dash and Bitcoin is to educate the user of a currency in appreciating the benefits of neutral currencies with respect to inflating currencies. The time has come to overcome the traditional artificial fear of having prices of goods and services changing or decreasing.
 
The appearance of this type of coin would be good for stabilizing prices for crypto currency, and would attract more investors, because many do not risk investing in crypto due to its instability.
 
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