The very idea of an algorithmic stablecoin is beyond idiotic. A lot of Crypto Andys are former gold bugs who bemoan th eloss of the gold standard (fun fact: the US dollar was never 100% backed by gold). Collaterized currencies are better but gold bugs still miss the point of what makes the US dollar work.
A currency only persists so long as people believe in it. That's it. As soon as that belief goes, it's all over. Even if it's collaterized that's true.
What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
So it obviously sucks that people lost sometimes a lot of money on Luna (seriously the subreddit is a dark place now) and I believe at least some of the anecodtes of people losing their houses.. This probably shares a lot of pathology with gambling addiction (fun fact: gambling addiction has the highest rate of suicide of any addiction).
But you also need to recognize that a lot of people who got wiped out by Luna were in it to get rich quick. I mean even the ~20% staking returns on Anchor should be alarming by itself. Who is paying for that 20% return? It's bound to be a Ponzi scheme.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet.
What actually maintains the value of the US dollar is that it's actually used to exchange goods and services. If you have $100, you have a reasonable idea of what it can get you: 20 Big Macs, 2 pairs of jeans, or 1 hour of work from a Bay Area SWE. The value of the dollar isn't just backed by the government. It's backed by everyone who offers goods or services with exchange for a predetermined quantity of dollars. This gives actual currencies momentum that cryptocurrencies simply don't have.
What actually maintains the value of the US dollar is the demand that is created by how it's the only thing you can use to pay the taxes you owe to the US government.
Even if no one cared about dollars for anything else, this would still give it value.
That the government demands US dollars is completely orthogonal to the value of the dollar. They can demand a weaker dollar or demand a stronger dollar. Argentina demands Argentina pesos, but their currency is embarrassingly weak. Their attempt to increase demand to their currency by taxing exchanging to foreign currency predictably has no nothing to control inflation.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also the US government itself. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
I started reading yesterday on DAI, an algorithmic stablecoin running since 2017. The thing is: a sizeable percentage of DAI is made of... USDC (a non algorithmic stablecoin created by Coinbase/Circle/Centre). They overcollateralize it and so far so good (since five years). They're even saying they're so overcollateralized they should widthstand USDC going to zero (or their USDC wallet being frozen by Coinbase, as Coinbase can do if asked to by the US authorities).
algostable != overcollateralized stable. Being an overcollateralized stable means it's actually backed by something, even if it's USDC. An algostable is backed by the sister token (eg: LUNA), and relies on faith and confidence in the sister token.
DAI is not algorithmic at all, but it is controlled by smart contracts. For $1.00 of DAI to be minted, a user has to post somewhere between $1.25-$1.50 of collateral. The act of creating DAI is literally that of taking out a loan. Over time, your debt to the system accrues interest. If your collateral falls under a certain price threshold, the issuer of DAI (MakerDAO), will seize your collateral to close your position. You keep the DAI, and MakerDAO liquidating you keeps the system above water and DAI at the dollar peg.
Algostables are not collateralized at all. They're more akin to ancient gold coins. Think of Luna as a small piece of gold. When UST is created, the Luna is "melted" to form the UST. At any point, the UST can then be "melted down" to get the Luna back out of it. From a certain point of view, UST literally is Luna.
DAI started out backed only by ETH, they added other collateral later. Even when only backed by ETH, DAI stayed within a few percent of the dollar, despite a 94% drop in the ETH price in 2018.
And Magic Internet Money (MIM) is overcollateralized with interest bearing crypto assets, and is also natively multichain via Multichain protocol
(The naming is supposed to cause consternation from people that dont matter, but since we’re all in one place now, the system design can now be evaluated independently)
Its basically what DAI would have been if DAI launched in 2021 and had choices, compared to 2017
> The very idea of an algorithmic stablecoin is beyond idiotic.
This is key. It's either idiotic or malicious. The general structure of the relationship between Luna and USDT should be identified as a species of scam and criminalized going forward.
Even for overcollateralized ones like Dai? There's an arbitrage mechanism that forces the overall backing to be greater than 150%. Now it may perhaps be somehow conceivable that the value of the backing drops by more than a third within a single block, but that still makes it an order of magnitude more stable than banks, which usually operate with ~5% equity (and that's post 2008 regulations, and based on rather optimistic book values; the market capitalisation is often significantly less).
The analogy fails because calling it Bitcoin implies a desire for it to be viewed as a currency, not an asset, in the same way DRPK implies a desire to be viewed as D, P and R.
> What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also the US government itself. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
It seems fashionable among libertarians to attribute the US dollar’s value to the US military, but that is at best a tangential reason, not the root reason.
The root reason for the US dollar’s value is that the robust and innovative US economy ensures enough consistent productivity, wealth creation, and economic growth for the tax base to service the interest on US Treasuries, which back the USD since Nixon took it off the gold standard in the 70s.
That’s it - the world trusts that it can hold US Treasuries, benefit from the interest they pay, and that US won’t default on them - the risk-free rate of return, almost as risk-free as gold but with a more consistent and predictable return (as long as the USD doesn’t undergo hyperinflation).
A strong military is a side effect of a strong economy, not a cause of it. China is probably the best recent demonstration of that.
You may argue the US economy depends on foreign oil and hence a military capable of guaranteeing that supply, but that’s not entirely true either. In recent years the US vacilates between net importer and exporter of oil [1], and could be a solid net importer with enough political will and impetus.
US economic and military strength probably has something like a 0.9 correlation. At that point, I think it’s ok to just substitute one for another in those kind of discussion without trying to figure out the causation link between the two (which probably isn’t a one way effect anyways)
Even if petrodollars ends, USD will still be one of the three or four most valuable currencies, alongside the Euro, Yen and maybe Pound, for the foreseeable future. China isn't trusted enough yet, and their impending invasion of Taiwan will make them even less so. The most stable and trusted remaining currencies are those four.
The idea of an algorithmic stablecoin is genius, time will tell if it works. But overall Luna’s crash isn’t too damning of the idea, because the root cause was a Ponzi scheme. (Which was identified and advertised as dangerous within the crypto community.)
The ponzi part was not the root cause, it merely sped up asset accumulation until it became a ripe enough target.
The root cause was the flawed arbitrage mechanism. It relied on always being able to redeem 1 UST for $1 equivalent of LUNA, and that relied implicitly on LUNA having value. Without that, whenever somebody cashes out UST they also cash out LUNA causing both prices to enter a death spiral.
And what value did LUNA have? Nothing more than the promises of the development team that you were getting in early on a soon-to-be-burgeoning ecosystem. "Hundreds of developers! Amazing new protocols!" In other words, vaporware. Which during a bull market can work for a time.
I agree with you that a functioning algorithmic stablecoin would be "genius". However I prefer calling it the Holy Grail of stablecoins. Powerful, if it exists.
> So we see that there never was a 100% reserve era in British or U.S. history. The 100% reserve gold standard that people sometimes talk about today is a fantasy.
The gold standard was never about keeping 100% reserves. It was about maintaing a peg and that technically doesn't even require you to have any gold.
A currency only persists so long as people believe in it. That's it. As soon as that belief goes, it's all over. Even if it's collaterized that's true.
What actually maintains the value of the US dollar is the long dick of the US government through the Fed obviously but also foreign and domestic policy. It's the ability to project military power anywhere on the planet. It's the nuclear arsenal.
So it obviously sucks that people lost sometimes a lot of money on Luna (seriously the subreddit is a dark place now) and I believe at least some of the anecodtes of people losing their houses.. This probably shares a lot of pathology with gambling addiction (fun fact: gambling addiction has the highest rate of suicide of any addiction).
But you also need to recognize that a lot of people who got wiped out by Luna were in it to get rich quick. I mean even the ~20% staking returns on Anchor should be alarming by itself. Who is paying for that 20% return? It's bound to be a Ponzi scheme.