If you had such a coin, there'd always be the risk that no one will want to buy it from you, making it worthless. Therefore, real stablecoins generally have a backing organization with a supply of another currency that is guaranteed to give you a dollar-equivalent for your coin. The problem arises when nobody wants to buy your coin and the backing organization doesn't actually have the money to back it up.
> real stablecoins generally have a backing organization with a supply of another currency that is guaranteed to give you a dollar-equivalent for your coin
I can't see the difference. So what if nobody wants to buy that coin either? You just added an additional step.
Traditionally, the backing currency is a well-established fiat currency such as USD, which in turn is backed by an international economy full of buyers. But here, I was specifically talking about the scenario where you contractually force buyers and sellers to maintain the peg. If the backing currency doesn't have such a contract, then buyers would still be willing to buy it for a sufficiently low price, like what's happening now to UST.
I don't know much about tethercoins and I might be misunderstanding something here, but if you force to maintain the peg in the backing currency (I assume via smart contract?) then you just changed the failure scenario to "nobody buys the coin", i.e. the value drops straight to zero. Not sure how that's an improvement except it happens in the backing currency.
...and this has circled back to your original comment where you say exactly that, but referring to the proposed stablecoin? Not sure what I'm missing!
I guess there's really a couple different failure modes for a pegged coin:
1. The backing organization isn't actually fully backing the coin with the backing currency. Too many people try to sell the coin at once, and the backing organization goes bankrupt.
2. The backing currency loses its real value, so that you can no longer exchange it for goods and services. You can buy as many as you want from your pegged coin, but all your money is gone. This could happen if the backing currency is another volatile coin, or if it is a fiat currency subject to hyperinflation.
I read Matt Levine's article on UST, and by his account it fell victim to the second failure mode: as holders lost confidence, the value backing Luna coin went down toward 0, due to the backing mechanism diluting the supply ad infinitum. Right now, Luna is at a low but positive value (in USD), and Terra has lost its peg, mainly because the backing mechanism is too slow. If it were infinitely fast, Luna would become worthless, and Terra would be worth whatever value speculators would gamble it at.
My apologies for the confusion, I got mixed up in the last comment. If you enforced the peg by contract, then you'd need a steady stream of buyers who believe it is valuable. But if you have a backing organization who can always provide a backing currency, then the peg can be maintained through arbitrage alone.
>people would be more interested in a coin that is enforced to be $1.00
I have some of these in my wallet right now, in fact.
But as to your question - why would anyone be interested in a $1 coin "even if it had nothing backing it"? The attractiveness of backed-by-nothing cryptocurrencies is the potential for wild upswings. That's lost in a hypothetical programmed-to-$1 digital currency.
And to preempt any comments about fiat, the USD is backed by "the full faith and credit" of the US Government, which at the current time is made tangible through military and economic force.
Finally, currency prices are dictated by the price people are willing to pay. There's no such thing as what you are suggesting if people refuse to pay $1 for it.
